MICROCAPITAL BRIEF: Indian Banks Collaborate on Restructuring Loans to Microfinance Institutions (MFIs), SKS Opts Out

Indian banks that have disbursed loans to microfinance institutions (MFIs) have reportedly prepared a blueprint for restructuring these loans. Under the proposal, Indian microfinance institutions (MFIs) would be given a maximum of ten years to repay loans to financial institutions at an interest rate of 12 percent. The loans that would be restructured under the proposal are estimated to total INR 130 billion (USD 2.8 billion) [1].

This negotiation follows the late 2010 slowdown in debt repayment by MFI clients in the state of Andhra Pradesh that resulted in several MFIs lobbying to postpone their repayments to financial institutions that had lent to them on a wholesale basis [2]. A group of Indian financial institutions subsequently submitted a proposal for the loan restructuring to the Reserve Bank of India (RBI), India’s central bank [2]. In January 2011, RBI agreed to the rescheduling of loans given to MFIs contingent on the MFIs rescheduling loans to their clients [2]. Details of the concessions that would be made by MFIs to retail borrowers have not been released.

Since the announcement of the blueprint for restructuring, several microfinance institutions (MFIs), including SKS Microfinance, have indicated that they do not wish to participate as they have enough funds to meet repayment obligations [3].

By: Alexandra Pattee, Research Associate

About Reserve Bank of India (RBI): Established in 1935, the Reserve Bank of India 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 now owns just a one-percent stake in NABARD.

About SKS Microfinance: SKS Microfinance is a microfinance institution (MFI) that was launched in 1998 and delivers microfinance products through a group-lending model to impoverished women in India. It is a for-profit, non-banking finance company that converted to a public limited company in May 2009 and launched an initial public offering on July 28, 2010. Equity investors include Quantum Hedge Fund, Sequoia Capital, Vinod Khosla, Small Industries Development Bank of India, Bajaj Allianz, Yatish Trading, Kismet Capital, Sandstone Capital, Silicon Valley Bank and Unitus. According to 2010 data from the US-based nonprofit data provider Microfinance Information Exchange (MIX), SKS Microfinance reported total assets of USD 1.2 billion, a gross loan portfolio of USD 1.2 billion, approximately 6.6 million borrowers, return on assets (ROA) of 6.3 percent and return on equity (ROE) of 22.4 percent.

[1] The Times of India, March 10, 2011, “Banks ready with MFI loan rejig plan”, http://timesofindia.indiatimes.com/business/india-business/Banks-ready-with-MFI-loan-rejig-plan/articleshow/7667563.cms

[2] MicroCapital.org Article, January 14, 2011, “Indian Banks Agree to Reschedule Loans to Microfinance Institutions (MFIs) Contingent on Their Rescheduling Loans to End-borrowers”, https://www.microcapital.org/microcapital-brief-indian-banks-agree-to-reschedule-loans-to-microfinance-institutions-mfis-contingent-on-their-rescheduling-loans-to-end-borrowers/

[3] Business Standard, March 16, 2011, “Lenders, MFIs at odds over CDR route”http://www.business-standard.com/in,dia/news/lenders-mfis-at-odds-over-cdr-route/428683/

MicroCapital.org Article, January 26, 2011: “Reserve Bank of India (RBI) Subcommittee Proposes Regulation for Microfinance Institutions (MFI)”, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-subcommittee-proposes-regulation-for-microfinance-institutions-mfi/

MicroCapital.org Article, February 8, 2011, “Reserve Bank of India (RBI) Relaxes Rules in Effort to Ease Microfinance Institution (MFI) Liquidity Crunch”, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-relaxes-rules-in-effort-to-ease-microfinance-institution-mfi-liquidity-crunch/

MicroCapital.org Article, February 22, 2011, “As Commercial Banks Remain Wary, Indian Microfinance Institutions (MFIs) Look Beyond Andhra Pradesh for New Markets”, https://www.microcapital.org/microcapital-brief-as-commercial-banks-remain-wary-indian-microfinance-institutions-mfis-look-beyond-andhra-pradesh-for-new-markets/

MicroCapital.org Article, November 15, 2010: “India’s Microfinance Industry on Brink of Collapse Due to Credit Freeze in State of Andhra Pradesh”, https://www.microcapital.org/microcapital-brief-indias-microfinance-industry-on-brink-of-collapse-due-to-credit-freeze-in-state-of-andhra-pradesh/

MicroCapital.org Article, December 24, 2010, “State Bank of India (SBI) Considers Restructuring Loans to Non-performing Microfinance Institutions (MFIs)”, https://www.microcapital.org/microfinance-brief-state-bank-of-india-sbi-considers-restructuring-loans-to-%e2%80%9cnon-performing%e2%80%9d-microfinance-institutions-mfis/#more-8888

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

MicroCapital’s Microfinance Universe Profile: Indian Banks Association (IBA), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Indian+Banks+Association+%28IBA%29

MicroCapital’s Microfinance Universe Profile: SKS Microfinance,
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS+Microfinance

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

Similar Posts: