Commercial banks may have to restructure loans to the tune of R5,000 crore given to MicroFinance Institutions (MFIs) that have a large exposure to Andhra Pradesh. A consortium lead by Small Industries Development Bank of India and ICICI Bank is in discussion with MFIs like Spandana Sphoorty Financial Limited, Asmitha and ShareMicrofin. The banking sector has an exposure of about R18,000 crore to the MFI sector of which about R 8,000 crore have been lent to AP based MFIs.
“We have received proposals for restructuring of loans from Andhra Pradesh-based MFIs,” said a senior bank official who is part of the consortium. Our initial discussions suggest that about R5,000 crore worth of loans would have to be restructured. We are contemplating converting some of these loans into term loans and a final decision on the same would be taken in due course.”
MFIs that have large operations in AP have been hit ever since the state government passed the Microfinance Act which has affected the loan collections in the state. SIDBI, ICICI Bank, HDFC Bank, Axis Bank and SBI are the main lenders to the sector. Among the small private sector banks YES Bank, Development Credit Bank and IndusInd Bank have a significant exposure to AP based MFIs.
“Select MFIs have asked for a one year holiday on loans. However, we have denied them that as our exposure is very small,” said a senior official from a small private sector bank. Small private sector banks have not been very happy with the consortium based approach since they feel neglected.
Given the problems that MFIs have been facing in recent months, the Reserve Bank of India had asked Indian Banks Association(IBA) to prepare an action plan. Accordingly, it was decided to follow a consortium- based lending approach, with 10 to 15 banks in a consortium. The central bank in February, had granted a one-time waiver to banks for restructuring loans given to MFIs. Accordingly, these unsecured loans restructured before March 2011 would be treated as standard assets.
Meanwhile, MFIs? operations in AP are still hampered and it would take sometime before the provisions of the Microfinance Bill are fully implemented and operations normalise in the state. Meanwhile, the problems for the AP-based MFIs are only mounting as fresh funding from banks has stopped.
On March 4 rating agency ICRA Limited revised the rating of ShareMicrofin indicating that the MFI?s ability to manage its microfinance activities in a sustainable manner is below average. ?Collections from non-AP states and curtailment of fresh disbursements have helped SML to conserve its liquidity there could be pressure on same going forward due to low collections in the sizeable AP portfolio,” said the rating agency. “Poor collection efficiencies in AP and lack of funding lines to book fresh business in non AP states is likely to put severe pressure on profitability and internal capital generation capacity of SML,” it added.
?It will take atleast one year for the situation in AP to normalise and banks are also confident by then the MFI sector would have stronger regulatory framework and regulator in place,” said a senior banker of the consortium.
The RBI appointed Malegam committee has submitted its report on the issues and concerns in the MFI sector which is now being reviewed by various stakeholders and the RBI is expected to come out with final guidelines for the sector by April.
