Banks turn more receptive to MFIs; UBI sanctions Rs 100 crore loan to Bandhan Financial Services

KOLKATA: Kolkata-based United Bank of India has just sanctioned a Rs 100-crore loan to Bandhan Financial Services, the country's fourth-largest microfinance institution (MFI) by assets. Of the Rs 30,000 crore MFIs have borrowed from the banking system till date, this is perhaps the most precious Rs 100 crore ever.

This is the largest loan to anMFI after banks virtually stopped lending to such firms after an October 2010 ordinance by the Andhra Pradesh government made lending and recoveries extremely cumbersome. UBI Chairman and Managing Director Bhaskar Sen said, "We will extend loans to MFIs that follow Malegam committee recommendations diligently."

UBI's loan to Bandhan is priced at 200 bps over base rate, which is currently at 10.50% a year, and is for a three-year term.State Bank of India, the country's largest bank, has also recently given fresh loans to a couple of smaller firms, according to a bank official.

Adds R Ramachandran, CMD, Andhra Bank: "If some proposal comes to us seeking funding we will examine it on merit." The fresh lending comes soon after banks restructured an estimated Rs 7,000-crore MFI loans last month. The institutions that went for restructuring include Asmitha Microfin Future Finance Services, Share Microfin, Spandana Sphoorty Financial and Trident Microfin. Basix, India's oldest MFI, did not go in for a debt restructuring and is now facing closure.

Banks turn more receptive: MFIs

SKS Microfinance, the largest MFI, is trying to raise 900 crore through qualified institutional placements. It reported a loss of 218.7 crore last quarter.

"The worst is over. There is a definite opening up of bank credit," says Ramesh Ramanathan, founder, Janalakshmi Financial Services, an urban MFI. He has raised multiple bank loans of 15-20 crore each from banks recently.

MFIs were gasping for capital ever since the Andhra Pradesh ordinance. On the one hand, recoveries came to a virtual standstill in the state, though other states were not affected as badly. Private Equity investments, which had helped fuel an earlier growth phase, also dried up. IPO plans were abandoned. And banks stopped lending.

Source: EconomicTimes