Karnataka   

SIDBI to resume refinance to KSFC

BANGALORE: After several rounds of talks with the Central and State Governments, Small Industries Development Bank of India (SIDBI) has agreed to resume refinance support to Karnataka State Finance Corporation (KSFC), a State-run Government undertaking.

SIDBI had stopped refinance to KSFC in the current financial year because the corporation had not drawn a road map to restructure its financial operations. The Reserve Bank of India, too, viewed that refinance without the road map would adversely affect fiscal health of the SIDBI.

KSFC, which was established in March 1959 under the State Financial Corporation Act 1951, had entered into a tripartite Memorandum of Understanding (MoU) with SIDBI and the State Government on October 31, 2003, for restructuring all its operations to make the undertaking economically viable.

While the MoU has validity until March 2009, SIDBI’s decision to stop refinance support to the corporation, would have derailed the revival programme which would have affected the development of small and medium enterprises (SMEs) in the State, officials told The Hindu on Wednesday. Besides KSFC, finance corporations of six other States had signed MoUs with SIDBI in 2003.

Recently, a meeting chaired by Arun Ramanathan, secretary, finance, Department of Economic Affairs, Union Government, helped resolve outstanding issues on refinance. The stand taken at the meeting was that until and unless there was a road map drawn to make its accumulated losses nil, followed by the comport letter from the State Government, SIDBI would not resume finance. A few days ago, KSFC submitted its restructuring road map to SIDBI and to the State Government. “SIDBI will soon refinance an amount of Rs. 100 crore to Rs. 150 crore to the corporation,” the official said.

The MoU has helped KSFC reduce its accumulated losses and non-performance assets (NPAs). SIDBI provided refinance of Rs. 450 crore till 2006-07. The corporation, which incurred loss continuously for five years from 1998-2003, started earning operating profits and has maintained this record for the fourth consecutive year. KSFC earned an operating profit of Rs. 17.32 crore in 2006-07 as against Rs. 8.56 crore in 2005-06.

The corporation, which has strength of 1,200, has reduced its accumulated loss from Rs. 1,043 crore in 2003 to Rs. 600 crore in 2007 while its NPAs dropped to 33 per cent in 2007 from 60 per cent in 2003.

To restructure its operations and expand lending to small and medium enterprises, the State Government has decided to provide equity of Rs. 150 crore to KSFC, which would be invested in Karnataka Neeravari Nigam Limited (KNNL). The Government has agreed to release Rs. 150 crore for the one-time settlement of loans of small and tiny borrowers. KSFC chalked out a plan to recover Rs. 160 crore, which would cut down its NPAs. It also decided to redeploy its staff in various consultancy works.

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