SIDBI reduced the annual service fee to 0.5% from 0.75%. This has been done with a view to reduce the risk of loss following a default as well as the guarantee will also reduce capital requirement for banks.
Especially Small scale loans carry full risk weight age. Therefore if there is a guarantee banks will be required to provide capital only for the un-guaranteed portion which ranges from 20-25%.
Speaking to ET, SIDBI CMD RM Malla said that the institution was extremely underleveraged in terms of guarantee. “We propose to increase the size of the guarantee fund from Rs 1,600 crore to Rs 2,500 crore.
At present, the value of the guarantees is around Rs 2 500 crore, whereas the fund is enough to provide guarantee for loans up to Rs 10,000 crore.”