Govt To Infuse INR 5K Cr Into SIDBI To Foster MSME Growth

The union government has approved equity support of INR 5,000 Cr into Small Industries Development Bank of India (SIDBI) to enhance credit availability to MSMEs and startups.

The government will infuse the fresh capital in three tranches through the Department of Financial Services (DFS). The first tranche will be worth INR 3,000 Cr and is set to be released in FY26 at a book value of INR 568.65 per share.

The remaining two tranches, of INR 1,000 Cr each, will be disbursed in FY27 and FY28 at the same book value at the end of the previous fiscal year.

The Centre expects this capital infusion to provide financial aid to an additional 25.74 Lakh MSMEs, taking the total beneficiaries to 1.02 Cr by FY28, up from 76.26 Lakh beneficiaries recorded at the end of FY25.

The projected impact on employment through this fund infusion is also significant. As per the government, the added beneficiaries will prop employment generated through MSMEs to 1.12 Cr by the end of FY28.

This projection is based on central government data highlighting that 30.2 Cr Indians are employed by 6.9 Cr MSMEs currently, at an average of 4.37 persons per enterprise. The MSME sector is the second largest employer in India, after agriculture.

The rationale behind the fund infusion is the anticipated growth in direct credit disbursal over the next five years which can cause a significant rise in risk-weighted assets on SIDBI’s balance sheet. Additionally, SIDBI has been developing digitally-enabled collateral-free credit products to increase the flow of credit and also offering venture debt to startups, which have added to the risk-weighed assets it holds.

To maintain healthy books, the bank would need higher capital to maintain the current capital to risk-weighted assets ratio (CRAR). A healthy CRAR, preferably over mandated levels, is essential toward having a favourable credit rating. This would in turn allow SIDBI to source capital at fair interest rates and pass on those benefits to MSME creditors.

“The proposed equity infusion in staggered or phased manner will enable SIDBI to maintain CRAR above 10.5% under high stress scenarios and above 14.50% under Pillar 1 and Pillar 2 over next three years,” the government said in a statement.

As per MSME ministry’s latest data, the sector’s contribution to the country’s GDP stood at 30% and amounted to over 45% of the total foreign trade in FY25. The government has accelerated efforts toward skills training, credit and other financial support to small businesses and marketing through platforms like ONDC.

SIDBI, as a significant contributor to the Startup India initiative, has been an integral part of both sectors. It supports various venture capital (VC) and alternative investment funds (AIF) across multiple stages of fund raises through its fund of funds, which has contributed INR 5,400 Cr to over 120 funds till date.

In November, SIDBI’s VC arm, SIDBI Venture Capital Limited, announced the first close of its spacetech focussed Antariksh Venture Capital Fund (AVCF) at INR 1,005 Cr, which will invest across early and growth stage Indian spacetech startups over the next ten years.

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