MICROCAPITAL BRIEF: Microfinance Institutions (MFIs) in India Take Legal Action Against Yes Bank for Loan Recall

Several microfinance institutions (MFIs) in India announced that they will be taking legal action against Yes Bank, a private-sector bank headquartered in Mumbai, for recalling loans totaling several billion rupees (the equivalent of tens of millions of US dollars). According to a representative of Spandana Sphoorty Financial Limited (Spandana), one of the MFIs that will be bringing a lawsuit against Yes Bank, the bank also raised interest rates from twelve percent to seventeen percent and reduced the lifetime of the loans from two years to approximately one year. The debt crisis in the state of Andhra Pradesh, which reportedly brought the rate of borrower repayment to MFIs down to twenty percent, prompted Yes Bank to make the recall. While Yes Bank reserves the right to adjust the terms of the loans, the MFIs argue that this is unjustified because they reportedly have made their scheduled payments and have not defaulted on any of their loans. Some MFIs have requested authorization from other banks to postpone payments by six months, and they are concerned that Yes Bank’s loan recall will discourage these banks from approving the extension. As of June 30, 2010, Yes Bank reported annualized return on assets of 1.62 percent, annualized return on equity of 19.71 percent and total assets of INR 409 billion (USD 9 billion). Yes Bank does not report to the Microfinance Information Exchange (MIX), the microfinance information clearinghouse [1].

By Julie Moksim, Research Associate

About Yes Bank: Yes Bank is a private-sector, commercial bank headquartered in Mumbai, India. The bank’s business lines include corporate and institutional banking, financial markets, investment banking, branch banking, business and transaction banking and wealth management. Yes Bank’s vision includes socially responsible banking. The bank developed a microfinance initiative known as Yes Sampann in collaboration with ACCION International, a Boston-based microfinance organization. As of June 30, 2010, Yes Bank reported annualized return on assets of 1.62 percent, annualized return on equity of 19.71 percent and total assets of INR 409 billion (USD 9 billion). Yes Bank does not report to the Microfinance Information Exchange (MIX), the microfinance information clearinghouse.

[1] Business Standard: “MFIs Plan Legal Action Against Yes Bank’s Loan Recall” by Namrata Acharya, January 4, 2011, http://www.business-standard.com/india/news/mfis-plan-legal-action-against-yes-bank%5Cs-loan-recall/420569/

MicroCapital’s Microfinance Universe Profile: Yes Bank

https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=YES+Bank

MicroCapital.org Brief, 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 Brief, December 27, 2010: YES Bank of India Recalls Approximately $22m in Loans Advanced to Microfinance Institutions (MFIs), https://www.microcapital.org/microcapital-brief-yes-bank-of-india-recalls-approximately-22m-in-loans-advanced-to-microfinance-insitutions-mfis/

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

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