Banks have decided to appoint non-executive chairmen in microfinance institutions that have opted for debt restructuring, to strengthen their grip on operations. The micro-lenders cannot hold any board meetings in the absence of the non-executive chairman.
For large microfinance firms like Spandana Sphoorty Financial, SHARE Microfin and Asmitha Microfin, the banks would have three representatives, including the non-executive chairman, on the company boards.
“In our board, there would be two representatives, one each from ICICI Bank and Small Industries Development Bank of India. A third member would soon be appointed by our lenders. One of these three would take charge as non-executive chairman,” said Padmaja Reddy, managing director, Spandana Sphoorty Financial.
“If the non-executive chairman is not present during a board meeting, it would be considered that the quorum is not met,” she added.
Udaia Kumar, managing director, SHARE Microfin, said there would be three bank representatives on the boards of SHARE and Asmitha Microfin. The latter is a microfinance institution managed by Kumar's wife, Vidya Sravanthi.
Trident Microfin's board would have only one representative from the banks, and he would act as the non-executive chairman. Indian Overseas Bank, which now owns 14.13 per cent stake in the microfinance firm following conversion of a part of the loan into equity shares, would appoint the representative.
Banks, however, will not have any representative on the board of Future Financial Services, since its promoter, G Dasaratha Reddy, has offered a personal guarantee against the restructured loans.
“In my case, the involvement of a bank is nil, as I'm the only promoter who has agreed to offer personal guarantee in the debt-restructuring programme,” said Reddy, who is also the chairman and managing director of Future Financial.
According to bankers, the move is in line with banks' objective of having a part to play in the way these microfinance institutions are run, and to ensure the repayment of their loans.
Other terms mentioned in the debt-recast programme include the conversion of a part of the debt into optionally convertible, redeemable preference shares, an interest rate of 12 per cent on restructured loans and a repayment period of seven-eight years, including a moratorium of one or two years.
For Spandana, the total debt being restructured is estimated at Rs 2,300 crore, of which Rs 1,000 crore is earmarked for conversion into preferential shares. In the case of SHARE Microfin, debts being restructured stand at around Rs 1,900 crore.
Shareholders of these firms have also been asked to infuse fresh equity. While investors in SHARE Microfin have decided to inject Rs 4.8 crore, in the case of Spandana, the equity infusion is about Rs 7 crore. “We are hopeful that with the support of the Andhra Pradesh government, we would be allowed to return to our work of providing inclusive financial services to the poor and vulnerable people,” said SHARE Microfin's Kumar.