Bhartiya Samruddhi Finance, a microfinance institution promoted by social entrepreneur Vijay Mahajan, is in talks with banks and private equity investors to raise around Rs 300 crore. This would allow the company to sustain its operations in the future.
The recent crisis in the microfinance sector, after the Andhra Pradesh government had passed a new law at the end of last year, eroded the profitability of most micro-lenders in the country. Liquidity of microfinance firms also dried up, since banks refrained from offering additional loans to these companies, fearing these advances would turn into non-performing assets.
“There is a public policy failure, which is the root cause of this crisis. We are in discussion with our banks, existing and new investors, to raise more money. We need around Rs 300 crore,” Mahajan told Business Standard.
Many microfinance institutions in Andhra Pradesh opted for a debt recast, since they found it difficult to repay their loans, as their recoveries shrunk. Bhartiya Samruddhi Finance and SKS Microfinance, the largest micro-lenders in India, were among the few microfinance companies that opted out of the debt restructuring programme.
Mahajan, however, clarified while the company faced a liquidity crunch, it was optimistic of securing fresh funds from its investors, as well as banks.
“In the last nine months, we repaid Rs 950-crore loans through collections from states other than Andhra Pradesh. In return, we got only Rs 25-crore loans from our banks during this period. The shrinking of the loan book is becoming a problem. There is an urgent need to infuse more money into the business,” he said.
In October, Bhartiya Samruddhi Finance’s loan book stood at Rs 1,800 crore, which comprised mostly performing assets. Currently, the micro-lender's loan book is estimated at Rs 1,000 crore, of which Rs 450 crore is classified as non-performing assets.