Industries with investments up to Rs 10 cr is medium scale

MUMBAI: For long, small and medium scale enterprises were clubbed together loosely, with no clear definition of what constituted medium scale units.
The government has now provided clarity on this issue for the first time. After the setting up of the Small and Medium Enterprises Fund (SME) in April this year having a corpus of Rs 10,000 crore, the government has now approved the definition of medium scale enterprises to cover investments in plant and machinery in an industrial undertaking up to Rs 10 crore. Commercial banks and financial institutions are now expected to follow this new definition approved by the finance ministry and the ministry of small scale industries, officials said.
Currently, the ministry of small scale industries defines only a small scale enterprise, although banks have their own internal assessment of such medium scale enterprises. Investment up to Rs 1 crore in fixed assets like plant and machinery, excluding land and buildings, in an industrial undertaking fits the definition of a small scale undertaking.
The clarity on this issue will help provide a boost to the Small Industries Development Bank of India (Sidbi) to enhance lending to medium enterprises. Sidbi has been mandated by the government to operationalise the Rs 10,000-crore SME Fund. Banks and financial institutions have been talking of wooing the medium scale enterprises, considering their potential. However, considering the inadequacy of financial resources at competitive rates and lack of Sidbi coverage, the finance minister Jaswant Singh had proposed the SME Fund this year.
The SME Fund is technically operational. The fund corpus will be built through a combination of resources provided by Sidbi in the form of deposits from foreign banks in lieu of priority sector loans besides lines of credit from multilateral institutions. The government has said that Rs 10,000 crore will be disbursed in two years to SMEs.
Close to Rs 5,000 crore will be raised through internal resources and deposits of foreign banks lying with it. The rest will be raised from the World Bank, which is providing a loan of over $120m, the Asian Development Bank ($250m) and KFW, Germany, which will chip in with $40m.
Sidbi is planning to lend to small and medium enterprises at an uniform rate of 9.5% which will be 200 basis point below the prime lending rate, in line with the announcement made by the finance minister in the interim budget in February this year. The loan will be for long tenures. For good quality state finance corporations, Sidbi is planning to lend at 7.5% and for other SFCs it will be 8%.