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)

The Reserve Bank of India (RBI), India’s central banking authority, has refused to give a special exemption to commercial banks, that include HDFC Bank, Corporation Bank and Axis Bank, to restructure loans outstanding to microfinance providers BASIX Group and Sharada’s Women’s Association for Weaker Section (SWAWS) Credit Corporation India Private Limited under a classification other than as non-performing assets [1] [2]. RBI has reportedly expressed that such a “special dispensation is unlikely for one or two firms,” and it would prefer “MFIs and banks to come together…as such concessions can be for the entire sector and not individual firms.” Both BASIX and SWAWS did not participate in a corporate debt restructuring (CDR) offer from RBI that expired in June 2011 that allowed banks to restructure loans given to MFIs without classifying the assets as “bad loans.” Under the CDR, banks offered concessions such as extended repayment terms, lowered loan rates and a moratorium on the repayments on wholesale loans to microfinance institutions (MFIs). 

BASIX Group’s microfinance activities are carried out by two MFIs: Bhartiya Samruddhi Finance Limited (BSFL), a non-banking finance company, and Krishna Bhima Samruddhi Local Area Bank Limited (KBSLAB), a rural bank. According to the Microfinance Information Exchange (MIX), BSFL reported total assets of USD 352 million, a gross loan portfolio of USD 281 million and 1.5 million active borrowers as of December 2010. As of the same date, KBSLAB reported to MIX total assets of USD 31.3 million, a gross loan portfolio of USD 20 million, return on assets (ROA) of 1.33 percent, return on equity (ROE) of 12.1 percent and 67,000 active borrowers.

As of 2010, SWAWS reported to MIX total assets of USD 28.3 million, a gross loan portfolio of USD 21.9 million, ROA of 0.13 percent, ROE of 0.48 percent and 142,100 active borrowers.

By Nisha Koul, Research Associate

About BASIX Group: BASIX Group is an Indian institution whose members provide poor people various services including microfinance, health insurance and agricultural and business development services. The BASIX Group operates through a holding company known as Bhartiya Samruddhi Investments and Consulting Services Limited (BASICS). BASIX Group’s microfinance activities are carried out by two microfinance institutions (MFIs): Bhartiya Samruddhi Finance Limited (BSFL), a non-banking finance company and Krishna Bhima Samruddhi Local Area Bank Limited (KBSLAB), a rural bank. As of September 30, 2010, BASIX reported a gross loan portfolio of USD 402 million with approximately 3 million clients and operations in 16 Indian states.

About Sharada’s Women’s Association for Weaker Section (SWAWS) Credit Corporation India Private Limited: SWAWS, registered in 1999, aims to “improve the quality of life of clients through provision of responsive and efficient financial services as per international best practices and transparency, while maximizing stake holder’s value.” As of 2010, SWAWS reported to the US-based nonprofit Microfinance Information Exchange (MIX), total assets of USD 28.3 million, a gross loan portfolio of USD 21.9 million, return on assets (ROA) of 0.13 percent, return on equity (ROE) of 0.48 percent and 142,100 active borrowers.

Sources and Additional Resources:

[1] Live Mint, “Loan recast plans of Basix, Swaws hit a roadblock,” http://www.livemint.com/2012/01/04224208/Loan-recast-plansofBasix-Sw.html?atype=tp

[2] Live Mint, “Basix, Swaws seek RBI approval for debt recast by banks,” http://www.livemint.com/2011/12/15211958/Basix-Swaws-seek-RBI-approval.html?d=1

MicroCapital.org story, November 1, 2011, “MICROCAPITAL BRIEF: Indian Microfinance Institutions (MFIs) Spandana Sphoorty Financial, Share Microfin, Asmitha Microfin Call Off Merger After Restructuring Plans Approved,” https://www.microcapital.org/microcapital-brief-indian-microfinance-institutions-mfis-spandana-sphoorty-financial-share-microfin-asmitha-microfin-call-off-merger-after-restructuring-plans-approved/

MicroCapital.org story, September 5, 2011, “MICROCAPITAL BRIEF: Vijay Mahajan of Microfinance Firm BASIX Says Firm to Explore Foreign Investors if Domestic Banks Refuse to Lend,” https://www.microcapital.org/microcapital-brief-vijay-mahajan-of-microfinance-firm-basix-says-firm-to-explore-foreign-investors-if-domestic-banks-refuse-to-lend/

MicroCapital.org story, April 26, 2011, “MICROCAPITAL BRIEF: Cresa Microfinance, Sharada’s Women’s Association for Weaker Section (SWAWS) Microfinance of India Face Possible Bankruptcy,” https://www.microcapital.org/microcapital-brief-cresa-microfinance-sharada%E2%80%99s-women%E2%80%99s-association-for-weaker-section-swaws-microfinance-of-india-face-possible-bankruptcy/

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

MicroCapital Universe Profile: SWAWS, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Sharada%E2%80%99s+Women%E2%80%99s+Association+for+Weaker+Section+%28SWAWS%29+Credit+Corporation+India+Private+Limited

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

 

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