In a move that could trigger an interest rate war among microfinance institutions, Hyderabad-based SKS Microfinance on Tuesday reduced interest rates on loans to 24.55% across the country. In November 2010, the MFI had reduced interest rates to 24.55% for the Andhra Pradesh in keeping with the government?s directive.
In a statement to the stock exchange, SKS said, ?We will not collect charges towards credit shield, loan processing fee and card fee from January 11, 2011. With this, the effective interest rates across the country will be 24.55% per annum for all future disbursements.”
MFIs have come under the scanner for charging high interest rates in the range of 24-36% while they borrow from banks at 10-13%, depending on their creditworthiness. The Microfinance Bill passed by the AP government requires MFIs to slash their rates to around 24% and also mandates MFIs to be transparent with the charges levied.
The smaller players may not be able to reduce rates further say analyst as funding from banks has dried up. Ujjivan Financial Services, a Bangalore-based microfinance institution is also planning to reduce its interest rates to 23% from February, said a spokesperson.
A senior official from Bhartiya Samruddhi Investments and Consulting Services BASIX Group said, ?Our interest rates across products hover in the range of 18 to 24%. Thus, competitive pressure is forcing other players to revise their lending rates.”
There seems to be no relief for MFIs as bankers say the non recovery of loans in AP seems to be spilling over to Tamil Nadu. ?There have been sporadic incidents in Tamil Nadu where borrowers have beaten up collection agents,” said a senior banker. In the interim, commercial banks are reluctant to restructure loans given to MFIs as they await RBI green signal on the same. The Indian Banks Association on behalf of all banks had requested RBI for a one-time waiver on restructuring loans given to MFI.
MFI bodies Sa-Dhan and MFIN have asked to restructure loans because collections in the state of Andhra Pradesh have dropped to levels of 15-20%. ? If loans given to MFIs are rescheduled, banks would have to classify them as non-performing assets. Hence, IBA will approach RBI to grant a waiver and treat the loans which are restructured as a standard asset,?? said a source.