The Reserve Bank of India (RBI) has given three Andhra Pradesh-based microfinance institutions (MFIs) — SHARE, Asmitha and Spandana — two additional years to meet regulatory capital requirements for qualifying as non-banking financial company (NBFC)-MFIs.
Besides, with the approval of the corporate debt restructuring cell, lenders to these MFIs have agreed to provide an additional Rs 1,780 crore.
After loan restructuring in September 2011, the MFIs had sought approval for a second round of debt restructuring, which was rejected by the central bank. The fresh lending by banks, as well as RBI’s forbearance, is an alternative to the debt-restructuring plans.
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According to RBI norms, NBFC-MFIs, except those based in the northeast, have to maintain net-owned funds of at least Rs 5 crore and a capital to risk asset ratio (CRAR) of 15 per cent.
Under the agreement with banks, Spandana will get Rs 1,150 crore, SHARE Rs 360 crore and Asmitha Rs 260 crore. The funds will help these entities expand outside Andhra Pradesh which, lenders hope, will aid a turnaround for these.
Since 2011, SHARE has increased its portfolio outside Andhra Pradesh by Rs 450 crore to Rs 1,450 crore. However, for Asmitha, the portfolio outside Andhra Pradesh had been reduced from Rs 660 crore to Rs 450 crore, owing to the debt settlement with banks, said an Asmitha spokesperson.
Since September 2011, all the three MFIs have reduced debt to banks through regular repayments. Since 2011, SHARE and Asmitha have together repaid about Rs 400 crore; currently, their loan dues with banks stand at Rs 2,600 crore.
For Spandana, loans due to banks have fallen from Rs 4,200 crore in 2011 to Rs 1,750 crore, said Nitin Agrawal, senior vice-president.
In 2011, banks restructured about Rs 6,000 crore of loans to several Andhra Pradesh-based MFIs, while continuing to treat these as standard assets, repayable through seven years.
Meanwhile, SHARE has informed lenders in the long term, it will merge with Asmitha. Subsequently the merged entity would de-merge its Andhra Pradesh portfolio from that outside the state, said M Udaia Kumar, managing director.
“We tried for a second round of restructuring. Since it wasn’t approved by RBI, we struck a deal with banks for an alternative arrangement. Initially, it was difficult to convince some public sector banks in the consortium, in terms of additional funding. However, based on the good portfolio performance of SHARE outside Andhra Pradesh, as well as the long-term plan to merger SHARE and Asmitha, banks finally agreed,” said a SHARE spokesperson.
For SHARE and Asmitha, the loans had to be repaid in two years, at 13 per cent interest, the spokesperson added.
For MFIs with all operations in Andhra Pradesh, it seems to be the end of the road. For instance, Trident Microfinance, which has debt dues of Rs 25 crore with banks, is expected to wrap up operations after repaying the debt. The MFI has already repaid Rs 23 crore, after selling assets worth Rs 18 crore.
“The process of closure is long-drawn and involves a lot of cost. We will take a call on it later,” said P Kishore Kumar, managing director, Trident Microfinance.