ICICI Bank, with five other financial intermediaries, has set up a Rs 800 crore (Rs 8 billion) India Advantage Fund for the equity component of small and medium enterprises.

The bank has invested Rs 200 crore (Rs 2 billion) in the fund. The other partners include the Life Insurance Corporation of India, Punjab National Bank and Oriental Bank of Commerce.

H N Sinor, joint managing director of ICICI Bank, said the fund had closed with a corpus of Rs 800 crore (Rs 8 billion). Although small and medium enterprises obtained debt funding from banks and financial institutions, they often lacked the capital to support their ventures, he pointed out.

"Since small and medium enterprises are highly leveraged, risk capital is hard to come by," Sinor added.

ICICI Bank initiated the fund under the aegis of ICICI Ventures Fund Management Company Ltd, a venture capital subsidiary. It has already started financing new privately held business ventures.

The bank is focusing on the farm sector and small and medium enterprises. The link between corporates and large co-operatives on the one hand and small and medium enterprises, ancillary industries and farmers on the other is a comfort factor that the bank is seeking to leverage. It hopes to capture this cash flow.

"There is no question of guarantees extended by corporates. But we are comfortable knowing that an enterprise or a contract farmer has been supplying inputs or produce to the corporate or the co-operative for some time," Sinor said.

The Reserve Bank of India has been asking banks to fund small and medium enterprises. While banks are comfortable extending credit to top-rated corporates, the credit flow to the agriculture sector and small and medium enterprises is thin.