Sidbi lends Rs 100 crore to SKS Microfinance with strings attached

Small Industries Development Bank of India, which has sanctioned a Rs 100-crore term loan to SKS Microfinance, has put a condition that the troubled MFI will have to use the resource for on-lending to the poor outside Andhra Pradesh, and especially in states which are under-served in terms of microfinance penetration.

SKS' collection efficiency dropped to 25% in Andhra Pradesh, while collection in the non-Andhra Pradesh portfolio remained at 95% on an average, it said in a report circulated among analysts. At present, Andhra Pradesh accounts for 30% of SKS' gross loan portfolio, followed by West Bengal (12.6%) and Karnataka (11.6%).

"We advise geographical diversification to mitigate credit risk. If an MFI is overexposed in one particular state, then it should explore new horizons for business," Sidbi managing director Sushil Muhnot said. All states except those in the southern region remained underserved in so far as microfinance goes, Sidbi said.

Sidbi's Rs 100-crore term loan has thrown a lifeline to SKS, which reported a Rs 428-crore loss in the third quarter to December 2011 as it was forced to write off loans of Rs 332 crore in Andhra Pradesh. Following this crisis, SKS' loan book shrunk to Rs 1,810 crore at the end of December 2011 from Rs 5,000 crore in September 2010.

This was the first major loan to an MFI in the southern state since October 2010. Banks have, however, started opening their purse strings slowly for other micro-lenders following Reserve Bank of India's move to impose operational regulations on MFIs and cap their lending rate at 26% a year, in step with the Malegam Committee's recommendations. However, banks are still shying away from Hyderabad-based MFIs, five of whom went for debt restructuring.

Sidbi has sanctioned loans of 490 crore to MFIs in January, of which Rs 200 crore has been disbursed. The state-run lender has assisted 128 MFIs so far. Its outstanding MFI portfolio stands at Rs 2,317 crore. "We are telling all MFIs that 70% of their loans should go to underserved areas," Sidbi's chief general manager PK Saha had said last week in Jamshedpur.

Source: EconomicTimes