State Bank of India, the country's biggest lender, has entered into an agreement with the state government of Gujarat to create a Rs 5,000 crore ($1 billion ) fund for investing in infrastructure projects. "We have signed an MoU with the Gujarat government to create a fund of Rs 5,000 crore to invest in equity of infrastructure project in the state," SBI Chairman O P Bhatt has been quoted as saying by PTI

He added that this fund will be besides the deployment of $6 billion (Rs 30,000 crore) in Small and Medium Enterprises(SMEs) for the state. SBI chief had on Monday while speaking at the Vibrant Gujarat Global Investors' Summit (VGGIS), disclosed the bank would facilitate fund deployment of Rs 30,000 crore in SMEs over the next three years in Gujarat.

According to Bhatt, SMEs contribute nearly 40-50% to GDP growth of the nation, and the sector accounts for half of the industrial output. "Banks could accrue a revenue of over Rs 28,000 crore by encouraging the SMEs. SME sector is to grow fastest in the next five years, with 14% growth in terms of revenue and 13% in terms of profits."

SBI joins a growing list of financial firms planning or setting up large infrastructure funds for India. IDFC-Citigroup sponsored mega $5 billion India Infrastructure Fund is already in the process of raising funds (The fund size has a revised equity ceiling of $1.25 billion as against the $2 billion originally) and Blackstone which pulled out of the above mentioned India Infrastructure Fund is looking to come up with its own standalone infrastructure fund for India. Last year, UK-based 3i(which raised $1.2 billion) was the first to raise a billion dollar infra fund dedicated for India.

The fund houses announced big plans after projections showed India requires infrastructure investments to the tune of $450-500 billion by 2012 given the level of economic activity in the country.

SBI also has another joint venture for infrastructure fund with Australia's Macquarie Group and International Finance Corporation (IFC), World Bank's PE arm, to raise a $1-1.5 billion fund.

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