Basix microfin trims loans by 66% as bank funds dry up

Pinched by bank funding drying up, leading microfinance firm Basix has cut its advances to a third in the past month and is now mulling to raise funds through sources like the ECB route, which interestingly, does not even have regulatory approvals.

"We are looking at various options including ECB which is not allowed under the RBI rules but we are looking whether there is any special leeway where we can get borrowings from outside either through a structured transaction or as direct infusion but we are awaiting details," the company's Chief Executive, Sajeev Viswanathan, told PTI here.

When asked how long would it take for Basix to get the money via the External Commercial Borrowings (ECB) route, generally adopted by corporates, Viswanathan said, "If required this can be put together in the next 30-40 days, that is not a major issue."

"We are working on structures which can be within current regulatory framework, and where structures cannot be supported by the current regulatory structures, we will have to go to the regulators and open up discussions (for allowing raising money through ECB route)," he said.

In the past month, Basix has disbursed only Rs 100 crore against the up to Rs 300 crore it would have otherwise done.

He reasoned that the desire to retain credit rating and preserving liquidity "led us to scale it down by two thirds". As of September 30, 2010, Basix had a loan book of Rs 1,800-crore with operations spanning 19 Indian states.

Banks had stopped lending to MFIs last month after criticism mounted on the microlenders for charging exorbitantly high rates of interest.

Many banks have been reportedly saying that they will not lend to MFIs charging over 24 per cent per annum as interest rates. Further compounding troubles for the MFIs was an ordinance passed in Andhra Pradesh -- the most penetrated market by MFIs -- which has brought in stricter statutes.

Viswanathan said Basix's average rates of interest charged from borrowers vary between 24 and 28 per cent. He also sounded confident that banks will resume funding soon, adding that the current phase is "temporary".

Andhra Pradesh contributes up to 30 per cent of Basix's total business and the repayments from the state have been normal till now, barring areas where it is not being able to operate due to agitations, Viswanathan said.

He also reiterated that the fund is in talks to raise up to Rs 250-crore through a new private equity investor by issuing fresh shares, but clarified that this is not a pre-IPO placement. The will come with an IPO in the next 18 months, he added.