The tu­mul­tuous jour­ney of In­dia’s first listed mi­crolen­der

Mint Asia ST - - In­side -

ex­cep­tion. We met all our com­mit­ments to lenders in­clud­ing to banks on time and never went into CDR (cor­po­rate debt re­struc­tur­ing) struc­ture,” said non-ex­ec­u­tive chair­man P.H. Raviku­mar.

To­day, a chunk of SKS’S as­sets are in Odisha, Bi­har, West Ben­gal, Kar­nataka and Ma­ha­rash­tra.

While most be­lieve that the in­dus­try has man­aged to sur­vive the Andhra cri­sis, the re­cent loan waivers an­nounced by the state gov­ern­ments of Ma­ha­rash­tra, Ut­tar Pradesh (UP) and Kar­nataka could trig­ger an­other round of de­faults in re­pay­ments. “The mar­ket at large, par­tic­u­larly in­vest­ment com­mu­nity, feels that for MFIS, Andhra Pradesh like event or UP or Ma­ha­rash­tra elec­tion like sce­nario which ad­versely af­fect their op­er­a­tions is go­ing to be a pe­ri­odic re­cur­ring fea­ture. This in­creases the credit costs,” Raviku­mar said.

A year later in Novem­ber 2011, Akula ex­ited the com­pany, al­legedly ow­ing to dif­fer­ences with the board.

This hap­pened amid a chang­ing reg­u­la­tory frame­work.

As a fall­out of the Andhra cri­sis, in De­cem­ber 2011, the Re­serve Bank of In­dia (RBI) put in place reg­u­la­tions based on the rec­om­men­da­tion of a high-pow­ered com­mit­tee headed by Y.H. Malegam, a mem­ber of the cen­tral bank’s board. The norms capped the mar­gin be­tween the cost of bor­row­ing and the price at which loans were given, and in­ter­est rates and loans were reg­u­lated.

De­spite this, the com­pany main­tained its growth mo­men­tum. As­sets un­der man­age- ment, con­sist­ing of non-andhra ex­po­sure, grew at a com­pounded an­nual growth rate of 46% be­tween fis­cal 2013 and 2017. As of June-end, its non-andhra Pradesh port­fo­lio grew 14% year-on-year to over Rs9,630 crore.

Fol­low­ing the Andhra cri­sis, the com­pany re­ported losses due to loan write-offs and a shrink­ing credit book. From the De­cem­ber 2011 quar­ter, when losses peaked to around Rs428 crore, the lender swung back to profit a year later. How­ever, de­mon­e­ti­za­tion also im­pacted the col­lec­tion of loans, which forced the lender to make higher pro­vi­sions, re­sult­ing in losses.

With im­prov­ing col­lec­tion, its net loss nar­rowed to Rs37 crore in the June quar­ter from Rs235 crore a quar­ter ago.

Even as things look nor­mal, Bharat Fi­nan­cial faced an­other hur­dle with the cen­tral bank killing its bank­ing as­pi­ra­tion. In Septem­ber 2015, RBI handed out in-prin­ci­ple SFB li­cences to 10 ap­pli­cants, eight of which were mi­cro­fi­nance lenders. SKS Mi­cro­fi­nance was left out.

Ac­cord­ing to Vikram Akula, the cen­tral bank’s de­ci­sion puz­zled him be­cause the lender seemed to meet all the cri­te­ria for an SFB. “Per­haps it was the RBIS dis­com­fort with the cur­rent man­age­ment team,” he said on Mon­day.

Dilli Raj, the then pres­i­dent of the com­pany, was un­der the scan­ner of the En­force­ment Direc­torate in a com­plaint filed by IDBI Bank against First Leas­ing Com­pany of In­dia, where he worked pre­vi­ously.

The con­ver­sion of MFIS into SFBS and RBI reg­u­la­tions are also be­ing seen as rea­sons for the fall of the MFI in­dus­try.

Reg­u­la­tions on loan spread and lend­ing has been un­favourable for the mi­cro lend­ing in­dus­try. For in­stance, MFIS are not al­lowed to lend to a bor­rower who al­ready has two loans but is not ap­pli­ca­ble to banks. SFBS have ac­cess to low-cost de­posits, which gives them ad­van­tage of lower cost of funds. MFIS are not al­lowed to ac­cess de­posits.

Ac­cord­ing to Bharat Fi­nan­cial’s Raviku­mar, the banks and SFBS to­day al­ready have 70% share in the over­all mi­cro­fi­nance lend­ing in the coun­try and trends in­di­cate that in an­other two or three years that share of MFIS would be less than 20-25% from 30% cur­rently.

Mon­day’s an­nounce­ment by In­dusind Bank about the merger talks with Bharat Fi­nan­cial fol­lows months of spec­u­la­tion. Sev­eral banks as well as non-bank­ing fi­nan­cial com­pa­nies were ru­moured to be ei­ther pick­ing-up a strate­gic stake or tak­ing over the com­pany.

Ac­cord­ing to an­a­lysts, most of the talks were based on the fact that a bank part­ner­ship would give the mi­crolen­der a lever­age to ex­pand its hori­zon into other loan prod­ucts such as gold credit, two-wheeler loan.

Akula, for­mer head of Bharat Fi­nan­cial, said that it ap­pears to him that the RBI has de­cided to fo­cus on ex­pand­ing fi­nan­cial in­clu­sion through fo­cus­ing on banks rather than through stand­alone MFIS.

“In light of the his­tory of po­lit­i­cal back­lash against stand­alone MFIS, I think this is a pru­dent tac­ti­cal move. I just would like to see the RBI ac­cel­er­ate this process so that all stand­alone MFI-NBFCS move un­der the um­brella of a bank, ei­ther by be­com­ing SFBS or merg­ing with a bank,” he said.

When asked if merger is nat­u­ral choice for Bharat Fi­nan­cial given the chal­leng­ing en­vi­ron­ment, Raviku­mar did not of­fer any com­ments.

If the Bharat Fi­nan­cial-in­dusind Bank merger deal goes through, Grameen Koota Fi­nan­cial Ser­vices Pvt. Ltd, and Satin Cred­it­care Net­work, which are the other two large mi­crolen­ders, will be the ones left in the space.

Jin­dal Haria, as­so­ciate di­rec­tor, fi­nan­cial in­sti­tu­tions, In­dia Rat­ings and Re­search said, There are over 40 NBFC-MFIS in the coun­try. It is a given that there will be fur­ther con­sol­i­da­tion in the sec­tor.

“Given that pri­vate banks are look­ing for a way to reach the mi­cro­fi­nance and miss­ing mid­dle cus­tomers and hence would gain from the dis­tri­bu­tion net­works that MFIS have set up. It also could be an easy source of PSL. For MFIS, We are al­ready see­ing that the cus­tomer ac­qui­si­tion in ur­ban ar­eas is in sin­gle dig­its for most of them and in very few ru­ral pock­ets it is over 20%.”

He fur­ther added, “They may have to evolve their loan prod­ucts and may not be able to main­tain high growth in group loan prod­ucts with­out in­creas­ing bor­rower lever­age. Hence there is clear syn­ergy be­tween banks and MFIS.”

To­day, a chunk of SKS’S as­sets are in Odisha, Bi­har, West Ben­gal, Kar­nataka and Ma­ha­rash­tra

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