Union Bank to enter microfinance arena in AP

State-owned Union Bank of India (UBI) made its maiden foray into the micro-credit arena today with the launch of a new scheme covering 20 mandals in Andhra Pradesh, a state where microfinance activities were hitherto the preserve of private companies.

"We have decided to lend 20 mandals about Rs 50 lakh each and we would extend this to about 100 mandals in this fiscal, which will be about Rs 50 crore by way of cash credit facility. This is in addition to Self Help Group (SHG) financing that is taking place in the state," UBI Chairman and Managing Director M V Nair said at a function to formally announce the scheme.

 

State Rural Development Minister Vasanth Kumar Vatti was also present on the occasion.

According to Nair, the bank initially selected 20 mandals out of the total 1,090 in the state -- which has witnessed around 70 deaths in recent months allegedly due to the coercive loan recovery practices of private MFIs -- to which it will extend micro credit worth Rs 50 lakh each.

"I see a tremendous scope in this type of financing, which is not high cost and allows them to repay at their ability. So it will... (meet) the requirement of under-financing which is seen in the SHGs," the banker said.

Speaking about the bank's exposure to the MFI sector, Nair said UBI's total exposure to some 45 MFIs across the country amounts to Rs 290 crore.

According to Nair, UBI's exposure to 15 MFIs in Andhra Pradesh alone stood at Rs 90 crore.

"We haven't taken any decision to reduce exposure on MFIs. It is an evolving situation and there's a regulation put in place, we are waiting for the Malegam committee's recommendation report and once that comes in, there will be a little more clarity on what should be our approach," he said.

Speaking about the overseas expansion plans of the bank, Nair said they already have one branch overseas in Hong Kong and six representative offices in other countries.

UBI will now apply for permission to open branches in Belgium and Dubai and set up a subsidiary in Australia, he added.