Most microfinance firms' loan rejig plans fail to clear scrutiny of banks

Four out of the five microfinance institutions, which opted for loan recast, have failed to convince banks to admit their proposals in the Corporate Debt Restructuring (CDR) cell.

While banks have agreed to restructure close to Rs 650 crore loans of BASIX Group’s micro-lending arm Bhartiya Samruddhi Finance Ltd (BSFL), the lenders have not approved the proposals of SWAWS Credit Corporation, Cresa Financial Services, Nano Financial Services and Dovefin Micro Finance. These four microfinance companies together have around Rs 175-200 crore outstanding loans with banks.

For SWAWS Credit Corporation, a Secunderabad-based microfinance firm, its lead bank Punjab National Bank (PNB) has rejected the request to convert a part of the loans into equity shares. The micro-lender currently has around Rs 90 crore loans outstanding with banks. “Seven out of the nine banks had agreed. But PNB and HDFC Bank have opposed the conversion plan. Since 30 per cent of our loans are from PNB we did not have the consensus to go into the CDR,” a senior executive of SWAWS Credit Corporation told Business Standard.

According to current norms, to admit a loan restructuring plan in the CDR cell, at least 60 per cent of the creditors by number and 75 per cent of the lenders by value have to approve the package. “69.5 per cent of our lenders by value had agreed. Hence, we did not have the required consensus," the official said.

SWAWS Credit Corporation had requested banks to convert 30 per cent of loans into equity shares as per the debt restructuring package. Its top management will meet senior executives of PNB next week to find a solution. The firm has also requested the CDR cell to allow them one more week for admitting the loan restructuring proposal.

However, banks have not referred the loan restructuring plan of Hyderabad-based Nano Financial Services. Instead, the lenders have decided to reschedule the repayment and asked the promoters to offer personal guarantee on these loans. The company has Rs 30 crore loans outstanding with five banks including Small Industries Development Bank of India (SIDBI), which is the lead bank.

Rajamundry-based microfinance firm Cresa Financial Services have also failed to persuade its banks — Indian Overseas Bank and Bank of Maharashtra — to refer its Rs 24 crore loan restructuring proposal to the CDR. India’s oldest micro-lender BSFL is the only microfinance company, whose debt restructuring package is being admitted in the CDR cell.

Social entrepreneur Vijay Mahajan led BASIX Group has agreed to offer corporate guarantee on these loans. “We are yet to receive the minutes of the CDR meeting. But bankers have informally told us our proposal has been admitted for CDR," a senior executive of BSFL said.

PNB, which is a lender to BSFL, had also opposed the micro-lender's proposal to convert a part of its loans into shares. But since it was not the lead bank, BSFL had managed to get the consensus needed for admitting its restructuring package in the CDR cell. "We have got 78.6 per cent of the bankers voting in favour," the official said.

In 2011, five Andhra Pradesh-based microfinance companies —SHARE Microfin, Asmitha Microfin, Spandana Sphoorty Financial, Trident Microfin and Future Financial Services — had restructured close to Rs 5,000 crore loans following the crisis in the sector.