MFIs appeal to recast residual loans of Rs 2,000 cr in AP

Micro finance companies have appealed to the Reserve Bank to ask banks to restructure the residual portfolio of around Rs 2,000 crore of loans extended in Andhra Pradesh, a top official from MFI industry said today.

Earlier, banks had restructured around Rs 5,000 crore of loans of MFIs operating in Andhra Pradesh after the state government ordinance regulating the mfi sector had made the recovery of the loans difficult. "We have asked for a residual portfolio of the Andhra Pradesh MFIs to be restructured, which is around Rs 2,000 crore," Mathew Titus, executive director of Sadhan, an association of MFIs, told reporters here after the pre-policy consultation with RBI today.

In January 2011, RBI had allowed banks to restructure loans of microfinance companies without any change in asset classification, as these firms were not able to service their debts because of the change in lending norms in Andhra Pradesh that affected their profitability. Subsequently, around Rs 5,000 crore of loan had been restructured by banks in Andhra Pradesh.

However, Titus said that the loans of small and medium MFIs which were not part of the earlier restructuring should now be allowed to be recast. MFIs have also sought a revision in the upper cap of the interest charged to the borrowers due to a higher interest rate environment.

 "A spread of 12% in good enough. But we think, given the current environment, the present ceiling of 26% is always going to be difficult," he said adding that credit rationing from the banking sector to MFIs is creating another problem for the industry. Referring to fund flow from the banking industry, he said it was inadequate.

"Securitisation deals have been happening but given that you were getting Rs 1,000 crore a month from the banks and now you are getting RS 500 crore in six months. So, the balance sheet size is shrinking and operations of MFIs are on the decline," Titus said, adding that the industry is now looking for funding options from Small Industries Development Bank of India.