Banks have finally agreed to restructure micro-lender Bhartiya Samruddhi Finance (BSFL)’s debts of about Rs 700 crore on the condition that the Vijay Mahajan-led BASIX Group would offer corporate guarantees against these.
BSFL’s loan recast proposal was referred to the corporate debt restructuring cell.
“It was decided the holding company of the Group would give corporate guarantees on these loans and pledge its shares with the banks,” a senior company official told Business Standard, requesting anonymity.
Bhartiya Samruddhi Investments and Consulting Services is the holding company of the BASIX Group. Besides BSFL, it also owns Bhima Samruddhi Local Area Bank.
BASIX had opted out of the debt-restructuring programme for microfinance institutions in June. However, as the crisis in the microfinance sector reached a nadir and it failed to raise fresh funds for its micro-lending business, BASIX requested its lenders to recast BSFL’s debts in December.
According to the initial draft of the loan-restructuring package, banks would convert around Rs 500 crore of debt into Tier-I equity capital. The repayment of Rs 200 crore of loans would be deferred and spread over six to seven years.
BSFL has also sought additional funding from banks and is exploring options to raise equity capital from private investors. “The banks have not taken any decision on whether these would provide fresh loans to us. We need additional funding to meet the new capital adequacy and provisioning norms,” the official said.
While micro-lenders in Andhra Pradesh were allowed to maintain a capital adequacy ratio of 12 per cent this financial year because of the crisis, these have to raise the ratio to 15 per cent from April 1, according to the Reserve Bank of India (RBI)’s guidelines on non-banking finance company microfinance institutions.
The banking regulator has also asked microfinance companies to make 100 per cent provisions on aggregate loan installments overdue for 180 days or more from the next month.
BSFL’s capital adequacy ratio fell to below 15 per cent since the end of November, as the company was unable to recover nearly Rs 400 crore it lent in Andhra Pradesh. Since October 2010, microfinance activities in Andhra Pradesh came to a standstill, as the state government introduced a legislation to curb micro-lending by private players.
BSFL’s total loan portfolio is estimated at around Rs 750 crore.
“If we have to follow the new provisioning norms, our capital adequacy ratio would be in a single digit. Hence, we need additional funding from banks and investors. We have also requested RBI to allow us more time for making higher provisions and maintaining the new capital adequacy ratio, as fresh funding is unlikely this month,” the official said.