Publications :: Press Release

CIDC signs Mou with SIDBI

4th June 2003

To Launch Unique Finance Lending Scheme for SSI Vendors / Small Scale Contractors New Delhi, June 4, 2003. In an effort to bring greater transparency and higher efficiency in the construction industry, CIDC (Construction Industry Development Council) along with SIDBI (Small Industries Development Bank of India) has launched a first-of-its-kind finance-lending scheme for the SSI Vendors / small and medium contractors with limited access to finances. The scheme is to be rolled out by June 2003. CIDC today signed the MoU with SIDBI to assist them in institutionalizing the lending mechanism by setting up a joint working committee that would look into the implementation and review of the scheme.

Initially the scheme will be available to SSI Sector / sub-contractors of large construction companies on competitive interest rates. This will help in overcoming the delays in projects due to the non-availability of working capital facilities. There is often a delay by banks providing assistance in spite of high interest rates.

Speaking on the occasion, Dr. Uddesh Kohli, Vice Chairman and Member Secretary of CIDC, said, "Construction Financing is one of the key concerns faced by the industry. As is well known, the industry is capital intensive and the completion of any project largely depends on timely and adequate access to funds. Launch of this scheme by SIDBI is a step towards enabling better functioning of industry by overcoming the financial bottlenecks".

According to N. Balasubramanian, Deputy Managing Director, SIDBI, "Pursuant to inclusion of construction sector as an industrial concern under IDBI Act, SIDBI has extended its services to the business from Construction Industry. SIDBI, through CIDC had approached a few graded and leading construction houses of the country to avail of the facilities, particularly for SSI Vendors, small and mid size construction enterprises working as authorized sub-contractors with them. Seeing the favourable response, we have decided to expand the facility to the entire sector".

Added P.R. Swarup, Director General of CIDC "Financing requirements of the industry are unique and complex due to different exigencies in different areas of operation. Furthermore small-scale constructors dominate the industry, which makes the scenario even more complex. To enhance the capacity and capability of the construction industry, it is therefore imperative to cater to the financial requirements of these small scale contractors.

CIDC has also conducted a study captioned "A Study on Financing Small Scale Contractors in the Construction Industry", partially sponsored by SIDBI. The study highlights the financial needs and working dynamics of small-scale units / contractors engaged in construction activities. A typical small contractor/ group of small contractors execute the major portion of construction works either independently or as sub contractors. The study proposes measures to remove bottlenecks, which exist in financing of small contractors by highlighting the risk and risk mitigation measures.

The report recommends that SIDBI can play a vital role in financing construction projects, keeping in view the fact that many of the inputs such as pipes, bricks, grills, metal stands, mosaic tiles, electrical fittings, sanitary fittings, cables, spares for construction equipments, etc., are also manufactured in the small scale sector besides the construction equipment market, valued at Rs. 1.05 lakh crore, substantial part of which is manufactured in the Small Scale Sector. Accordingly, the report suggests that SIDBI can provide both fund based as well as non fund based support. The provision of bank guarantees towards earnest money, security deposits and performance guarantees are areas in which Banks / FIs can intervene. SIDBI would examine the modalities for providing such services. The non-fund based requirement is estimated at Rs. 43,000 crore per annum and is rising at +12% per annum. Funded support in form of bridges financing, factoring of running bills, up gradation of technology and working capital is another high potential business with estimated demand of Rs. 66,000 crore per annum. Apart from resource-based support, it was also suggested that SIDBI could provide advisory services. The introduction of new construction industry specific insurance products and practice of grading of projects and contractors were amongst the measures suggested to reduce the risks of financing small-scale contractors.

About CIDC:

Incorporated in March 1996 by Planning Commission, Government of India along with Construction Industry, Construction Industry Development (CIDC) works towards promotion and development of the Indian Construction Industry. Hon'ble Deputy Chairman, Planning Commission is the Patron of the Council. Shri. G.V. Ramakrishna, Former Chairman Disinvestment Commission and SEBI is the founding & present Chairman. Board of Governors of CIDC has representation from various Ministries, Govt. Departments, Financial Institutions, and Educational & R&D Institutions and from the Construction Industry. CIDC is currently involved In a number of vital projects aimed at bringing about improvements in the Construction industry.

About SIDBI:

Small Industries Development Bank of India (SIDBI) is the principal Financial Institution in the country for promotion, financing and development of industries in the small scale sector and to co-ordinate the functions of the institutions engaged in such activities. For the FY ended March 31, 2003, the sanctions were Rs. 10,904 crore and disbursements were Rs. 6,789 crore, recording a growth of 20.8 per cent and 14.7 per cent respectively over the previous year. The cumulative sanctions and disbursements of the Bank during the 13 years since its inception aggregated Rs. 86,158 crore and Rs. 59,101 crore respectively, registering a cumulative annual growth rate of 13.4 per cent and 11.4 per cent, respectively. As on March 31, 2003, the net worth of the Bank stood at Rs. 4,075 crore.