Caspian Advisors-backed Sahayata Microfinance Pvt Ltd has suspended the brass, including its chief executive, on charges of mismanagement.
The Rajasthan-based microfinance company has also stopped fresh lending temporarily, to set its house in order. Following the suspension of management and poor performance, rating agency CARE downgraded its non-convertible debentures of Rs 19.5 crore from CARE BB+ to CARE B-.
Hyderabad-based Caspian Advisors manages two funds — Bellwether Microfinance Fund and India Financial Inclusion Fund. They make investments in companies working in the financial inclusion space. CARE also placed its rating under credit watch due to the increased uncertainty after suspension of the senior management. The company in its emailed response to queries from Business Standard said the quality of the loan book has deteriorated in many places and worse than that of its peer group.
In September some board members pointed out prima facie evidence of the management’s misrepresentation of company performance.
The board has ordered a detailed portfolio audit. The investors have placed an interim -management to control operations, to ensure the business continues uninterrupted. The company will resume loan disbursement from December.
The board questioned chief executive, chief financial officer and other senior managers on charges of serious misreporting and mismanagement, it said. While chief executive was suspended with immediate effect, the CFO and head of operations were stripped of their duties immediately. They were subsequently suspended.
The loan book has been shrinking since late 2010, as the management was unable to raise new equity and new financing. As of September, the loan book was Rs 77 crore, down from Rs 160 crore in November-December 2010. The gross non-performing assets stood at Rs 8.8 crore (11.5 per cent). The company has fully provision for NPAs in its books of accounts.
The recovery performance is satisfactory. The company reported net loss of Rs 4.92 crore on total income of Rs 48.16 crore during FY11.
Sahayata has presence in eight states and around 71 districts including Rajasthan, Madhya Pradesh and Gujarat. Western India where the market for microfinance is still largely under-penetrated and customer demand for microcredit remains very strong.
The level of competition in most of the geographies where Sahayata operates is not as intense as in the southern states such as Andhra Pradesh, Karnataka.