‘Govt’s easy rules speeding up funds transfer to start-ups’

Will take another two years to see impact of the Rs 10,000-crore scheme

Startup_901x517Start-ups have managed to lay their hands on just about Rs 50 crore of the Centre’s ambitious Rs 10,000-crore Fund of Funds (FFS) for financing such ventures, two years after the start of the nine-year scheme.

The DIPP, however, is hopeful that things would speed up with the recent relaxation in the funding guidelines of the Small Industries Development Bank of India (SIDBI), which is managing the FFS, but it will take about two years for a reasonable impact to be felt, a government official told.

One has to understand that disbursal of funds to start-ups after sanctioning of funds to venture capital funds (VCFs) has a time lag of two-three years. Since the FFS did not have many takers in the initial years because of stringent guidelines, a nominal amount had been disbursed to start-ups till March this year. But now that some rules have been relaxed and VCFs have made a beeline for the fund, the disbursals will see a steep increase in the next two years,” the official said.

Rules eased

Following the relaxation early this year, VCFs lapped up the entire Rs 1,100 crore lying with SIDBI which had few takers earlier.

It takes long for funds sanctioned by SIDBI to VCFs to reach start-ups as the development bank only commits to 15-20 per cent of the corpus of each fund. The fund managers need to raise the balance from private sources. While the Union Cabinet approved the establishment of FFS in June 2016, in line with the Startup India Action Plan which aimed to address the acute funding shortage suffered by start-ups in the country, a total of Rs 500 crore had already been released to SIDBI by the Finance Ministry in 2015-16. An additional Rs 100 crore was released in 2016-17.

Since the old rules mandated that the VCFs had to invest the entire corpus in start-ups despite the fact that just 15-20 per cent was borrowed from SIDBI, not many were interested. The VCFs had no means of spreading their risks while lending to start-ups and hence avoided the FFS,” the official said.

However, early this year, the government revised the rules, which now place an obligation on VCFs to invest just twice the amount it borrows from SIDBI in start-ups while it is free to invest the rest wherever it wants.

Encouraged by the interest shown by VCFs in the FFS following the relaxation in rules, the DIPP has sought Rs 1,600 crore from the Finance Ministry as supplementary demand.

The DIPP did not get any fresh sanctions for FFS in this year’s Budget as the money previously allocated had not been used up. But now, the scene has changed totally and we feel that we can use up as much as we are allocated,” the official said.

Source: Business Line

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