Ujjivan Financial Services, a Bangalore-based microfinance institution, has prepaid Rs10 crore to Yes Bank after the bank recalled the line of credit given to it.
Samit Ghosh, managing director and chief executive officer, Ujjivan said, ?Yes Bank had sent us a letter revoking the loan granted and accordingly we have prepaid the loan.”
The bank had given Ujjivan a loan of Rs 10 crore for a period of two years and it serviced the first installment. However, after receiving the letter the MFI prepaid the entire loan with interest on December 31, 2010. In every loan agreement, Ghosh said, ?The bank reserves the right to recall the loan without assigning any reason. In this case the bank had cited the bad business environment in Andhra Pradesh as a reason for recall of the loan.”
The private sector bank had reportedly recalled loans to the tune of Rs100 crore from select MFIs, namely Ujjivan and Equitas Micro Finance India. While Ujjivan decided to prepay, some of the other MFIs, Crisil in its recent rating rationale said, could be exploring appropriate redressal avenues, such as approaching a banking ombudsman or seeking legal recourse. Crisil has downgraded the credit rating of five MFIs, Asmitha Microfin, Bhartiya Samruddhi Finance Limited, Equitas, Spandana Sphoorty Financial and Ujjivan with negative implications. While opposing the Crisil rating downgrade, Ujjivan Financial Services said, ?Ujjivan continues to enjoy strong business operations across twenty states in India, excellent portfolio quality, and more than sufficient liquidity to meet all our contractual loan servicing requirements. We have consistently met all loan servicing requirements to all our lenders on or before due date. Under these circumstances, the decision to be generalised and categorised together with other MFIs and downgraded, is unwarranted and without merit.”
Ujjivan operates in twenty states and Union territories and has no operations or loan exposure in Andhra Pradesh. “Our loan portfolio has continued to improve even during this industry crisis. Our cumulative repayment rate improved from 99% to 99.12% in November 2010,” said Ghosh. P N Vasudevan promoter and managing director of Equitas Micro Finance India refused to comment on the loan recall by YES Bank.
The loan collection in Andhra Pradesh has been under pressure ever since the state government passed the MFI Bill. The Bill has made it mandatory for MFIs to collect loans on a monthly basis as against the earlier practice of weekly collections.
Additionally, the rating agency in its rating rationale said, ?One commercial bank recently decided to reduce the loan facilities extended to MFIs, and has sought repayment of loans ahead of the original due dates.”
?Crisil understands that the loan agreements contain clauses that allow for such reduction. This development highlights the additional potential risks to the liquidity and funding of MFIs in the near term, arising out of contagion effect if other banks also initiate similar steps,” it added.