Bhartiya Samruddhi Finance, popularly known as Basix and the country’s oldest known microfinance agency has approached banks to restructure Rs 800 crore of debt. The move comes barely a week after the Reserve Bank of India (RBI) issued new rules to stiffen the provisioning norms for micro finance lenders.
Earlier this year, Basix, promoted by social entrepreneur Vijay Mahajan, had decided not to restructure debt. However, with a declining capital adequacy ratio and mounting losses, it has had to do so, to meet the new regulatory norms.
"We believed we’d be able to arrange the capital needed. We have been repaying our bank loans on time. But the company now needs immediate funding to improve the capital adequacy ratio and meeting the new provisioning norms. We have taken the proposal to our lenders," Manmath Dalai, chief executive, told Business Standard.
The Small Industries Development Bank of India has the highest loan exposure in Basix. It has formed a committee with the other lenders -- Indian Overseas Bank, Punjab National Bank, Corporation Bank and some more -- to examine Basix's proposal.
While Basix has repaid about Rs 700 crore of bank loans in the current financial year, it has not been able to raise fresh capital because of the ongoing crisis in the micro finance sector in Andhra Pradesh. "We need capital of around Rs 400 crore. Debt restructuring will ease the pressure on our cash flow. We are also in talks with a few investors to explore possibilities of capital infusion," Dalai said.
Sector experts said Basix's capital adequacy ratio would improve if banks agreed to restructure the debt by converting a part of it into equity. Dalai, however, said the company had not suggested a specific structure to the lenders.
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Basix's capital adequacy ratio had fallen below 15 per cent at the end of November, as it has not been able to recover the money it had lent in Andhra Pradesh. Since October 2010, micro lending activity in that state has been at a standstill, after the government there put into effect new rules curbing such lending and affecting the recovery of loans.
Last week, RBI said microfinance institutions would have to maintain a minimum capital adequacy ratio of 15 per cent. Those with more than 25 per cent of loan portfolio in Andhra were to be allowed to maintain a minimum of 12 per cent for financial year 2011-12 only.
Dalai said Basix had not been able to grow its loan portfolio ever since the crisis in Andhra Pradesh, which had eroded its balance sheet. "We have repaid Rs 1,100 crore of bank loans since October 2010. We have not been able to lend in Andhra Pradesh in this period. Hence, our balance sheet size has shrunk," he said.
The company currently has a loan portfolio of Rs 800 crore, about half of which is in Andhra. In 2011-12, Basix has given around Rs 130 crore of loans outside that state.
Along with stringent capital adequacy requirements, RBI has also tightened the provisioning norms for the renamed category of ‘non-banking finance company micro finance institution’ (NBFC-MFI).
The central bank said NBFC-MFIs have to make full provision on aggregate loan instalments overdue for at least 180 days. The new norms take effect from April 1, 2012. In the existing guidelines, MFIs had to maintain a provision of 10 per cent on the dues where repayment was due for more than 180 days.
According to experts, Basix may have to make an additional Rs 360 crore provision on its Andhra loan portfolio to meet the new guidelines.