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MFIs' Andhra loans recast plan likely to be delayed

Somasroy Chakraborty  |  Mumbai 

Micro-lenders’ plans to restructure the loans of their poor customers appears to have hit a hurdle, with the Andhra Pradesh state government asking firms to formally re-submit the proposal.

The state government plans to review the proposal with other departments— the department of rural development and the law and ministry—and discuss the matter with the cabinet before deciding on the issue.

“We don’t know how long it would take to secure clearances from each ministry. There is a possibility that it could be delayed for a long time,” said an industry player, who requested anonymity because of the sensitivity of the issue.

Another microfinance official confirmed the development. “The state government wants microfinance institutions to jointly sign the proposal and re-submit it. It would then go to the cabinet for a final decision,” the official added.

Senior Andhra Pradesh government officials had held a meeting with microfinance institutions yesterday.

Earlier, microfinance institutions, through their industry association, Micro Institutions Network, had submitted a loan restructuring plan for their poor borrowers to the state government. These firms had offered to reduce the rate of interest and increase the repayment tenure. In return, they wanted the state government to relax the lending norms for the sector.

Industry analysts said the loan restructuring and relaxation of lending norms in the state was unlikely to happen anytime soon. “The government will be cautious and will not take a decision anytime soon. I don’t think normalcy in the microfinance sector in Andhra Pradesh is expected in the near term,” said an analyst with a Mumbai-based brokerage.

The microfinance institutions have also initiated talks with the Reserve Bank of India to secure a special dispensation on provisioning of these restructured loans. The dispensation would allow micro-lenders not to make additional provisioning for these restructured loans.

First Published: Fri, September 09 2011. 00:08 IST