Banks reluctant to offer fresh loans to MFIs for debt recast

Banks are reluctant to offer fresh term loans to microfinance institutions (MFIs) that have opted for debt restructuring, unless MFI promoters agree to offer personal guarantees on the loans to be restructured.

Five microfinance institutions – Asmitha Microfin, Future Financial Services, Share Microfin, Spandana Sphoorty Financial and Trident Microfin – had earlier sought Rs 800-1,000 crore of fresh loans. The micro lenders requested banks to consider these additional loans for restructuring, along with their existing debts.

“The majority of banks had opposed this proposal in the corporate debt restructuring committee meeting. Since promoters are not willing to offer personal guarantees, there are doubts over the debt restructuring programme. In such a situation, no bank is willing to increase its exposure to these companies,” a senior official of a private sector bank told Business Standard.

“Bankers have told us any additional loan would be considered only if we agree to offer personal guarantees...We are quite clear that promoters would not offer any personal guarantee. Hence, the situation is bit fluid,” said a senior official of a micro-lender which had opted for debt recast.

The status quo has also raised fears on the ability of microfinance companies to repay their existing debts and run their day-to-day businesses. Hyderabad-based Spandana Sphoorty Financial had asked for a fresh term loan of Rs 100 crore from banks. The company planned to use these funds to redeem commercial papers it issued to banks and financial institutions. Share Microfin too, sought Rs 200 crore of additional term loans for short-term business requirements.

“No decision has been taken on whether additional loans would be offered to Spandana Sphoorty to redeem its commercial papers. At this point, banks are apprehensive about increasing their exposure to this sector,” said a senior official of a Mumbai-based bank.

Almost a third of the loans given by banks to microfinance institutions are proposed to be restructured. The corporate debt restructuring cell had admitted loans worth Rs 6,473 crore to five microfinance institutions.