Sidbi lines up Rs 350 cr for Bandhan’s women

Small Industries Development Bank of India , or Sidbi, has extended a Rs 350-crore line of credit to Bandhan Financial Services to on-lend to poor women. Bandhan said it will use the fund to lend to 3.5 lakh new borrowers this fiscal. 

Sidbi has also committed to offer another `50 crore to Bandhan in the form of subscription to the latter’s proposed non-convertible debentures (NCD). 

Bandhan, the country’s fourth-largest microfinance institution (MFI) by portfolio size, has received `150 crore from Sidbi earlier this week as part of the first tranche of the `350-crore credit facility. The MFI said it will draw the balance amount preferably in the fourth quarter of 2010-11. 

Both Sidbi and Bandhan have confirmed the development. Sidbi is the lone institutional investor in the Kolkata-based MFI. This is the largest funding support from Sidbi to us, Bandhan founder chairman and managing director Chandra Shekhar Ghosh told ET. In 2009 and 2008, Sidbi had lent `250 crore and `100 crore, respectively, to Bandhan. 

Of late, the state-run development bank has stepped up its funding support to MFIs as part of its endeavour towards the country’s mirco-credit development. 

Mr Ghosh said Sidbi has pegged the rate of interest for the loan at 10.5% a year, which is a very competitive rate in a rising interest rate market. The loan is offered for 3-5 years. In comparison, Sidbi had offered `250 crore to Bandhan in 2009 at 12% per year for five years. Sidbi chief general manager Ram Nath said Sidbi follows a rating based model to fix its lending rate. 

Regarding the `50-crore NCD, the Bandhan chief said they will raise the refund once regulatory issues concerning the use of such instruments by an NBFC-turned MFI get resolved by the Reserve Bank of India . It is learnt that the banking regulator has in-principle allowed Bandhan to consider the resource as Tier-II capital. 

Bandhan has 32-lakh borrowers at present and it plans to increase the tally to 40 lakh by March 2011. It has an outstanding exposure of `2,000 crore and it aims to grow it to `3,200 crore by the end of 2010-11.