SIDBI’s financing scheme for energy saving projects

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The government has been trying to infuse greater vitality and provide an impetus for growth to micro, small and medium enterprises (MSMEs). It has tried to address the challenges on all fronts—to increase output, create employment opportunities and provide access to finance. Recently, the Small Industries Development Bank of India (SIDBI) has extended a line of credit to MSMEs for energy saving projects. The project is expected to encourage MSME units to undertake energy saving investments in plant and machinery, and in production processes that reduce energy consumption and, enhance energy efficiency, to increase profitability in the long run.

By Richa Chakravarty

Monday, August 01, 2011: <strong>Financial assistance

Apart from financial assistance, technical aid would also be provided to MSME units to disseminate information and successfully implement energy saving projects. Along with SIDBI, financial assistance will be offered from State Finance Corporations (SFCs) and Non-Banking Financial Companies (NBFCs). Through this project, SIDBI aims to contribute to preserving the environment while driving the socioeconomic development of the country.

Eligibility criteria

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New and existing MSME units are eligible only if they fall under the category as defined in the Micro, Small and Medium Enterprises Development (MSMED) Act 2006. These units can enjoy minimum financial assistance of Rs 1 million. MSME units graduating out of the medium scale are not eligible for this assistance. Also, these units should have a sound track record and financial position as well as minimum investment grade rating of SIDBI.

The list of equipment eligible for financing is available in any of the SIDBI offices. This list is continuously revised and updated. The energy saving sub-projects under this initiative presently include: installation, improvement or adoption of such manufacturing machinery that meets the specific requirements for energy performance standards provided by related energy conservation act in India. Other than that, installation of building envelopes, equipment, heating systems, lighting and electrical power/motors in compliance with energy performance standards provided in the Energy Conservation Building Code (ECBC), is eligible for SIDBI assistance. Also, equipment that utilise alternative energy resources, which can help reduce greenhouse gas (GHG) emissions will also get assistance. Clean development mechanism (CDM) projects that promote changes in current processes and technologies will be duly supported by technical consultancy. Thus, these units can not only enjoy financial benefits but also upgrade and update their units with the latest technological developments.

However, to apply for this benefit, the prospective borrower is required to submit the application form with supporting documents. The borrower should explicitly provide details of the energy saving potential of the project, which is an important parameter for deciding the eligibility under this line of credit.

Financial parameters given by SIDBI

Parameters Norms

Minimum assistance

Rs 1 million

Maximum assistance

25 per cent for existing units

33 per cent for new units

Debt equity ratio

Maximum 2.5:1

Interest rate

Interest rate is based on an internal risk rating within the range given below:

Fixed rate: 9.5-10 per cent per annum

Floating rate: 9.75-10.5 per cent per annum

Asset coverage

Minimum asset coverage should be 1.4:1 for new units and 1.3:1 for existing units

Repayment period

This is based on individual repayment capabilities. However, the repayment period normally does not extend beyond seven years

Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine

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