India: Banks Deny Credit to MFIs, Put Condition for Restructuring

Feb 2011
Mumbai, India, February, 14 2011 - With no appetite for further risk, banks have told the microfinance institutions that they would not lend beyond what they have committed till December 31, 2010.

The banks and MFIs had a meeting late last week at the headquarters of Indian Banks' Association (IBA) in Mumbai to discuss the restructuring of loans, and the banks said they would not be able to lend any further. The MFIs which attended the meeting were SKS Microfinance, Spandana Sphoorthy, Asmita and Share Microfinance.

The Reserve Bank of India had allowed banks to restructure loans to the sector on January 19.

"We are going to meet again after 10 days. However, we don't want to increase our exposure to MFI sector, as in the current scenario, lending is considered risky," a bank officer said. "The total outstanding loans to all the MFIs together add up to Rs 2,000 crore," he said.

Banks are considering personal guarantee from promoters to restructure the loans. They have also asked MFIs to come out with their projected cash flow for next three years based on which the loans could be restructured. The restructuring plan includes extending time to repay the loans. As per the RBI's directive the re-structuring of loans has to be completed by March 31.

The MFI sector is going through a turbulent phase and the loan recovery in Andhra Pradesh has come down to 10%.


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