Future Financial may be first MFI to opt out of debt recast

To repay Rs 110 crore restructured loans, release promoter's guarantee

Future Financial Services is set to become the first microfinance company in the country to opt out of corporate debt restructuring (CDR), nearly two years after it agreed to the exercise.

This comes after the Andhra-based micro lender improved its financial position by expanding its business in Karnataka and Tamil Nadu.

“We have already initiated the process and are discussing it with our bankers. We are ready to repay Rs 110 crore of loans restructured in 2011. This will allow us to secure fresh loans from banks and invest the money in growing our business further,” G Dasaratha Reddy, managing director, said.

Following the restrictions imposed by the Andhra government on private micro-lending in the state in October 2010, five of these entities — SHARE Microfin, Asmitha Microfin, Spandana Sphoorty Financial, Trident Microfin and Future Financial Services – had restructured close to Rs 5,000 crore in loans in 2011. Two more – Bhartiya Samruddhi Finance and SWAWS Credit Corporation – had opted to do so in 2012.

Future still has a fourth of its Rs 100-crore loan portfolio in Andhra. While the recovery rate there continues to dwindle, it is around 99.6 per cent in Karnataka and Tamil Nadu. “We are now in a position to write-off our Andhra portfolio and still have a positive net worth,” Reddy said.

He was the only microfinance promoter who had agreed to offer his personal guarantee against the restructured loans. The move would allow him to get free of this.

Bankers say Future might have to pay a charge for deciding to opt out of the CDR cell. Reddy said the company was willing to pay the charge and did not expect it to be more than Rs 3.5 crore.