Only Andhra govt can rectify the situation in state: Vijay Mahajan

Close to Rs 7,000 cr micro loans turned bad after the AP govt introduced the micro finance regulation in Oct' 10

Livelihood financial services group Basix founder and chairman Vijay Mahajan today said unless the Andhra Pradesh government permitted microfinance operations, MFIs can never recover the money lent to the poor borrowers in the state.

Close to Rs 7,000 crore micro loans turned bad after the AP government introduced the micro finance regulation in October, 2010. The MFIs are required to comply with a host of rules such as prior approval for giving new loans under the AP Microfinance Institutions (money lending) Act, and this the companies say is impossible to follow. While the central micro finance Bill, once passed, could bring some confidence among banks and investors back, the AP situation has to be corrected only by the AP government, said Mahajan, who was a former president of the industry body Micro Finance Institutions Network (MFIN).

"We were a Rs 1,800-crore company (Basix NBFC). Today, we are a Rs 80-crore company. Out of this Rs 1,800 crore, Rs 1,250 crore was from outside AP. Yet, we had to repay Rs 1,100 crore to banks as they became nervous after the AP episode and no fresh lending was given," he told reporters on the sidelines of an insurance event here. Also, the prospects of capital infusion into his company were bleak owing to the deep losses while bank lending has also become a problem for the industry across the country.

The chances of loan recovery are even more remote because most of the staff who knew the borrowers are no longer with the companies. Basix alone had lost 9,000 staff out of the over 10,300 people employed in AP and elsewhere, he said. The company suffered a loss of Rs 500 crore in AP and a loss Rs 150 crore in operations outside the state.

The situation is no different for other companies. Except SKS, all other micro lenders including Spandana, Share, Asmita, Trident and Future Finance turned negative net worth companies after the AP effect, according to him.

Terming the AP act as a classic case of misguided public policy, Mahajan said the government had treated the whole group as a class without distinguishing the good and the bad instead of taking a specific action against a specific wrongdoing. He alleged that the poor borrowers of the state were now subjected to the greed of money lenders, who are allegedly charging as high as 10 per cent rate of interest per month.

Central Bill unlikely this year
Mahajan said the proposed central micro finance Bill was unlikely to be tabled in Parliament this year as the Standing Committee on Finance headed by Yashwant Sinha was expected to give its report just in the middle of the monsoon sessions. The likelihood of tabling it during the winter sessions is even more remote as the general elections will be around the corner, he added.

According to him, it will take at least three years for the industry to limp back to normalcy once the regulatory uncertainties end.