Lenders, MFIs at odds over CDR route

Lenders to microfinance institutions (MFIs) have approached the Corporate Debt Restructuring (CDR) mechanism for seven large MFIs, including SKS Micro Finance, Basix and Spandana. However, some of these MFIs, including SKS, have conveyed to the banks they would not like to be a part of the mechanism as they have enough funds to meet repayment obligations.

Among the lenders which have exposure to MFIs are ICICI Bank, Sidbi and Citibank.

The banks have also approached the Reserve Bank of India for a speedy clearance of restructuring proposals to avoid making provisions for these stressed loans before March 2011. The extra provisions may hit the bottomline of lenders, said a senior IDBI Bank executive.

Sources familiar with the developments said SKS’ total debt is around Rs3,000 crore. Officials of some of the MFIs admitted they were under pressure from lenders to go in for CDR.

The recovery from clients dipped in Andhra Pradesh after the state government enacted a law restricting functioning of MFIs.

Senior public sector bank officials said initially lenders were looking for short-term restructuring of loans. This was on the assumption that problems in recoveries would be sorted out soon. But it now transpires that the ground realities are far more complicated and any improvement would take a long time. Hence, the only choice left was to look at giving MFIs a longer period.

Indian Banks’ Association officials said the CDR forum had a standard format to assess cases and finalise a package for each MFI. The restructuring will mean giving more time for repayment, a cut in interest rates, making some sacrifice on the amount due, asking MFI promoters to bring in additional capital and commitment to restructure clients’ loans.

A public sector bank official said the draft debt revamp package includes rescheduling existing loans (to be repaid within 10 years) at around 12 per cent and extending fresh funding in the form of working capital term loan.

Banks will take up cases of smaller MFIs based on their experience with the larger ones. In cases where repayment is impossible, they may have to write off loans, the official added.

In January, RBI had asked banks to go easy on MFIs by relaxing certain norms related to loan restructuring. They were allowed to restructure loans extended to MFIs even if they were not fully secured. As a special case, banks need not classify such loans as non-performing assets.