L&T Finance Holdings Ltd, part of country’s largest engineering company Larsen & Toubro, is planning to re-evaluate its microfinance business model. The non-banking finance company is now planning to shift the microfinance business to a newly-incorporated wholly-owned subsidiary L&T Unnati. The company has said, it is awaiting the regulator’s nod.
Meanwhile, the company has said that it has stopped disbursing to microfinance institutions in Andhra Pradesh due to the regulatory process involved in any new disbursements in the state.
Speaking to reporters about opening of its proposed IPO to raise around Rs 1,245 crore for its future operations, N Sivaraman, president, and whole-time director, L&T Finance Holdings, said, “We are awaiting the Central Regulator’s framework to shape up the microfinance industry. Once this is in place, we will re-evaluate our business for further growth.”
L&T Finance has an exposure of around Rs 460 crore in the micro-finance sector, of which around Rs 200 crore is in Andhra Pradesh.
Now the new disbursements have been stopped in the State of Andhra Pradesh, since the MFI ordinance enacted on October 15, 2010, and the subsequent enactment of the MFI Act, in view of the uncertainties and the regulatory process involved in any new disbursements, according to company’s Red Hearing Prospectus for the proposed IPO.
Owing to the promulgation of new laws in the industry and the decline in collections from customers in Andhra Pradesh, it has cut down the disbursement of loans in general. It has a presence across six other states with microfinance lending business.
The prospectus says, “Given the uncertainty on the implementation and enforcement of the MFI Act and the potential impact of the Malegam Committee report on the regulatory framework for the... industry, we may re-evaluate the business model, strategy and structure of our microfinance segment, including potentially migrating the business of our microfinance segment from L&T Finance to a newly-incorporated company within our group, L&T Unnati, one of our wholly-owned subsidiaries.”
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“However, as of the date of this Red Herring Prospectus, no further steps have been taken in this regard,” it added.
Launched in June 2008, the microfinance business of L&T Finance has posted the issuance of 1.25 million individual loans and cumulative disbursement of Rs 1,454.43 crore till March 31, 2011. The company would also look into expanding its operations in new locations in the long-term, depending upon the evolving regulations, according to company officials.
The company recently raised around Rs 330 crore through private equity from Capital International PE Fund through a pre-IPO placement. The company’s objective for the IPO includes repayment of intercorporate deposit issued by its promoter to the company, of an aggregate amount of Rs 345 crore along with meeting other general corporate purposes including meeting the expenses of the issue and achieving the benefits of listing on the Stock Exchange.