Spandana Sphoorty seeks forbearance and a waiver from its lenders

Spandana Sphoorty, the troubled microfinance institution (MFI), has sought forbearance and a waiver from its lenders as regards some conditions in agreements on borrowing funds.

While it is servicing all borrowing, there has been a breach in certain covenants on account of a rise in non-performing assets (NPAs) and a change in management, the MFI said in a filing with the BSE.

There has been an increase in portfolio at risk (PaR) and NPA ratios due to higher delinquencies caused by the pandemic.

The query to the company seeking more information on which covenants it had sought forbearance and waiver from the lenders did not get a reply.

The company suffered a loss of Rs 58.87 crore in the September quarter (Q2FY22) on a sharp rise in impairments and other provisions. It had posted a net profit of Rs 62.95 crore in Q2FY21. In Q1FY22, it had booked a profit of Rs 47.52 crore.

As of September 30, 2021, its gross NPAs stood at 6.09 per cent and net NPAs at 3.15 per cent. The provision coverage ratio (PCR) was 48.26 per cent and the capital adequacy ratio (Note-8) 42.41 per cent, according to the Q2FY22 results. The MFI said it had discussion with the lenders. It has no reason to believe that any adverse action, such as a levy of higher interest or a recall of the facility, will be invoked by the lenders for breaches. None of the lenders has indicated any remedial action.

The company has consistently made repayments — Rs 1,927 crore — on time over July-November 2021.

With the current rate of collection and repayment, the company has the capacity to generate Rs 75-100 crore of incremental cash per month in the absence of fresh disbursements, providing ample cover on liquidity.

It has an adequate liquidity surplus of about Rs 1,369 crore as of November 30, 2021, and sanctions in the pipeline. It has taken fresh loans from select trusted lenders to provide fresh disbursements, it added.

The focus of the interim management has shifted to the cash collected and deposited at headquarters. Cash collection in December stood at Rs 442 crore.

Referring to the provision policy, the MFI said the company had been conservative in provisioning for the quarter due to the impending Covid-19 wave and recent organisational changes.

It holds a higher provision buffer on the balance sheet in spite of a lower portfolio at risk.

On a standalone basis, the company holds provisions of Rs 806 crore, which accounts for Rs 12.4 per cent of the Q2FY22 assets under management. The impact from incremental provisions and write-offs was Rs 390 crore for the first half (April-September 2021).

Spandana Sphoorty said it was carrying provisions of Rs 24.6 per cent on the restructured books of Rs 1,299 crore (including interest as of September 30, 2021).

Restructuring was done through tenure extensions for the unpaid instalments, and no future holiday was given on equated monthly instalments (EMIs). The current EMIs for restructured loans didn’t change and the focus on collections for these loans continues as usual, it added.