Banks oppose fresh loan to Share Microfin by StanChart

Standard Chartered Bank’s plan to offer a short-term loan to Share Microfin to allow the company redeem non-convertible debentures has hit a roadblock. Other banks that had agreed to restructure their loans to the Hyderabad-based microfinance institution have opposed the move.

These lenders argue that Standard Chartered Bank has worked out a better repayment structure with Share Microfin than the arrangement proposed in the micro-lender’s debt restructuring programme.

According to industry sources, Standard Chartered Bank had subscribed to non-convertible debentures worth Rs 25 crore issued by Share Microfin. These debentures are due to mature in March 2012.

Since Share Microfin is facing a liquidity crunch following crisis in the microfinance sector, the foreign lender has agreed to offer a short-term loan, to be used to repay these debentures. The fresh loan will carry an interest of 12 per cent with repayment tenure of five years, excluding one year of moratorium, two persons familiar with the development told Business Standard.

However, the debt recast plan of Share Microfin, which has been referred to the Corporate Debt Restructuring (CDR) cell, has proposed the repayment period of these loans should be six years, excluding one year of moratorium, with a 12 per cent interest rate.

“This is not acceptable to us. The current guidelines clearly state if a company has gone to CDR, it cannot offer better (repayment) terms to a bank which is not a part of the debt restructuring programme,” said an official of a private bank, which has loan exposure to Share Microfin.

The Reserve Bank of India (RBI) has allowed banks to restructure loans of microfinance institutions, without classifying the asset as non-performing. Banks have proposed to restructure about a third of their loan exposure to the sector. The central bank has set June 6 as the deadline for such debt recast.

“In the CDR mechanism, we have been offered a repayment period of 72 months, while for Standard Chartered Bank it is 60 months. Hence, we have opposed this. A decision will be taken in the next CDR meeting later this month,” an official of another private sector bank said.

Standard Chartered Bank is not in the list of banks whose loans to Share Microfin are being restructured through CDR cell. However, by the norms, if a company has approached the CDR cell for debt restructuring, any fresh borrowings by the company needs to be approved by the committee.

Share Microfin’s managing director, Udaia Kumar was not available for comments.

“It would be inappropriate for us to comment due to client confidentiality,” Standard Chartered Bank said in an e-mailed response.

Share Microfin’s total debt is estimated at Rs 2,401.8 crore, of which Rs 2,160.3 crore loan is proposed to be restructured. Earlier Share Microfin’s local rival, Spandana Sphoorty Financial, had sought Rs 100 crore fresh loans from banks to redeem commercial papers it issued earlier.