SKS not to participate in debt recast programme

SKS Microfinance, the country’s largest microfinance lender, on Wednesday said it would not participate in the corporate debt restructuring (CDR) programme as suggested by its lenders, owing to availability of sufficient funds to repay loans.

“At its meeting on March 16, the Board of directors has decided against corporate debt restructuring. Instead, it will explore other possibilities for additional fundraising from various banks and financial institutions,” the company said in a statement.

Earlier, banks had approached the Reserve Bank of India, seeking approval to extend the debt restructuring programme for microfinance companies beyond March 2011. The move was aimed at protecting their profitability without making additional provisions on these loans.

MFIs, including SKS, which mostly lend to poor people in rural areas, have been facing heightened regulatory scrutiny for the past several months, following reports these companies charge borrowers a high rate of interest.

The Andhra Pradesh government recently passed a legislation curbing unethical loan recovery practices of MFIs. The state accounts for nearly one-third of the sector’s business. Banks were also reluctant to offer fresh loans to them.

These factors raised fears about microfinance companies’ ability to repay debt. SKS, however, clarified it had sufficient funds to pay-off its loans, estimated to be around Rs 2,700 crore.

“We don’t want to be a part of the CDR programme. We have enough cash to repay debts,” a company official told Business Standard.

SKS, which counts Infosys’ co-founder NR Narayana Murthy and billionaire George Soros among its investors, raised Rs 1,654 crore through its maiden share sale in July 2010. It is the first and only microfinance institution in India to be listed on local stock exchanges.

Source: Business Standard