MICROCAPITAL BRIEF: Banks Recast Loans of $136m for Indian Microfinance Institution Bhartiya Samruddhi (Basix)

Unspecified banks have recently recast loans totaling INR 7 billion (USD 136 million) for Bhartiya Samruddhi Finance Limited (Basix), an Indian microfinance institution (MFI) [1]. Like many other MFIs operating in the region, BASIX has struggled since a law was passed in 2010 in the Indian state of Andhra Pradesh prohibiting weekly collections or “doorstep” business and requiring government approval for all second microfinance loans. The law was passed in response to suicides reportedly spurred by aggressive loan collection practices. Politicians also encouraged borrowers not to repay their loans [2].

Basix had opted out of an offer from the Reserve Bank of India (RBI) to refinance part its debt without the loans being classified as non-performing assets in April 2011 [2]. After failing to secure private funding, it has opted for corporate debt restructuring, but it remains unclear whether the firm will be allowed to do it without the loans counting as non-performing.

As of December 2011, BASIX Group reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 159 million, a gross loan portfolio of USD 155 million, approximately 1.19 million active borrowers and operations in 16 Indian states and 6 other countries. As of March 2011, BASIX Group reports ROA of 0.66 percent and ROE of 4.73 percent.

By Natalie Baer, Research Associate

About BASIX Group: BASIX Group is an Indian entity whose members provide poor people with products including microfinance, mobile payments, health insurance and agricultural and business development services. BASIX Group operates through a holding company, Bhartiya Samruddhi Investments and Consulting Services Limited (BASICS). The group’s microfinance activities are carried out by two microfinance institutions (MFIs): Bhartiya Samruddhi Finance Limited (BSFL), a non-banking finance company (NBFC), and Krishna Bhima Samruddhi Local Area Bank Limited (KBSLAB), a rural bank. BASIX Group also promotes BASIX Academy for Building Lifelong Employability Limited, BASIX Consulting and Training Services Limited, BASIX Krishi Samruddhi Limited, BASIX Sub-K iTransactions Limited and Ctran Consulting Limited. As of December 2011, BASIX Group reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 159 million, a gross loan portfolio of USD 155 million, approximately 1.19 million active borrowers and operations in 16 Indian states and 6 other countries. As of March 2011, BASIX Group reports ROA of 0.66 percent and ROE of 4.73 percent.

About the Reserve Bank of India (RBI): Established in 1935, the Reserve Bank of India (RBI) undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While all microfinance institutions (MFIs) and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5 percent stake in the outfit, RBI owns a one-percent stake in NABARD as of 2011.

Sources and Additional Resources:

[1] Banks agree to recast BASIX’s Rs 700-cr MFI loans http://www.business-standard.com/india/news/banks-agree-to-recast-basixs-rs-700-cr-mfi-loans/468322/

[2] India: Banks Agree to Recast Rs. 400 cr Basix Loans http://www.livemint.com/2012/03/04223512/Banks-agree-to-recast-Rs-400-c.html

MicroCapital story, January 17, 2012, “MICROCAPITAL BRIEF: Preferring Sector-Wide Solution, Reserve Bank of India Refuses to Classify Restructured Loans as Performing Assets for Microfinance Institutions BASIX, Sharada’s Women’s Association for Weaker Section (SWAWS)” https://www.microcapital.org/microcapital-brief-preferring-sector-wide-solution-reserve-bank-of-india-refuses-to-classify-restructured-loans-as-performing-assets-for-microfinance-institutions-basix-sharadas-women/

MicroCapital story, January 24, 2012, “MICROCAPITAL BRIEF: Microfinance Institutions in Andhra Pradesh Request Extension to Meet New Capital Adequacy Ratios Imposed by Reserve Bank of India” https://www.microcapital.org/microcapital-brief-microfinance-institutions-in-andhra-pradesh-request-extension-to-meet-new-capital-adequacy-ratios-imposed-by-reserve-bank-of-india/

MicroCapital story, January 23, 2012, “MICROCAPITAL BRIEF: SKS Microfinance to Further Downsize Workforce, Cap Return on Assets at 3%” https://www.microcapital.org/microcapital-brief-sks-microfinance-to-further-downsize-workforce-cap-return-on-assets-at-3/

MicroCapital Universe profile: BASIX Group? https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=BASIX+Group

MicroCapital Universe profile: Reserve Bank of India (RBI)? https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29

Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/

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