In what could be a major setback to microfinance institutions (MFIs), the Andhra Pradesh government proposes to set up a non-banking financial company (NBFC) to cater to the needs of self-help groups (SHGs). The state government proposal involves roping in Andhra Bank as an equity partner. However, the chairman and managing director of the lender, R Ramachandran, says it is too early to comment on the proposed outfit. In a freewheeling chat with Prashanth Chintala, he said the outfit was yet to take a final shape. Edited excerpts:
The Andhra Pradesh government has come out with a proposal to set up an NBFC, with Andhra Bank as an equity partner, for taking up microfinance activities. What do you have to say about this?
The state government has conceived a special purpose vehicle in this regard and invited us for discussions. The discussions are at a preliminary stage. So, it is too early to say anything. The structure of the proposed outfit is yet to take a final shape. As per the government’s intention, it will be technology-driven, with necessary controls. This is what is being talked about and it is too early to comment.
So, you are open to this concept?
Andhra bank is the State Level Bankers’ Committee (SLBC) convenor. As the SLBC convenor, we are trying to give suggestions and add value to the concept. But in terms of actual participation, we are yet to decide. It involves a policy decision, which will be taken at an appropriate time.
How long will it take to set up the NBFC?
Let’s see. Efforts are on. The government is taking steps in the right direction and as far as we are concerned, we took part in one or two meetings.
Why have the public sector banks in the state failed to achieve lending targets set for SHGs?
SHG lending is a very structured thing in Andhra Pradesh. As the SLBC convenor, we have been taking a pro-active role. There are other banks also, which have been taking a fairly active role. However, for SHGs outstandings to go up on an incremental basis year after year, there has to be new group settings and also, there has to be economic activity and initiative from their segment.
Besides, the growth in this sector reaching the target or not should not be seen by looking at the figures of one single year. Because in a particular year, there could be a lot of reasons as to why the target has not been reached. Last year particularly, you may be aware that there was quite a lot of uncertainty because of the new legislation brought in by the government to regulate the activities of MFIs.
Will your lending to SHGs increase this financial year in the light of the decline in the operations of MFIs in the state following the new legislation?
We are not substituting for MFI lending. Our plan and structure of lending are different from that of MFIs. They operate at a micro level and their recovery and lending patterns are different. For us, there is a structure, there is a cooling period and there are norms set by the National Bank for Agriculture and Rural Development that have to be followed. As far as MFIs are concerned, there is certainly a slowdown in lending on account of the recovery issues in the state. However, they will always find a substitute mechanism to overcome this (problem).
What is Andhra Bank’s total exposure to MFIs?
Our total exposure isRs 410 crore and the outstandings are close to Rs 310 crore.
Is repayment by MFIs on schedule?
Yes, repayment is largely on schedule. The overdue percentage is marginal and at a manageable level.
Has any MFI approached you for rescheduling of loans?
There are a few MFIs which have sought rescheduling of loans. However, as MFIs are financed by more than one bank, the banks have embarked upon the rescheduling exercise on a consortium basis. Under this, the lead bank, or the bank that has got the lead exposure, is arranging for a meeting of the member-banks concerned to evaluate data and work out the modalities. The MFI seeking reschedulement is giving the proposal to the lead bank, along with all connected financial data. Essentially, we need to look at cash flow projections, viability and assess what type of reschedulement is required by the MFI concerned. This is within the framework of the Reserve Bank of India (RBI) guidelines.
When will this process be completed?
It is expected to be completed by the end of May. The RBI has given time up to early June.
What are the bank’s prospects following the recent infusion of Rs 1,173 crore through allotment of shares to the Union government?
This capital gives us a distinct advantage because it takes care of our capital adequacy requirement till mid-2013. This also enhances our capacity to raise further capital through Innovative Perpetual Debt Instruments, Tier-II capital, etc, which we may make use of in the time of need. So, there will not be any necessity to come out with a follow-on public offer or rights issue or qualified institutional placement for quite sometime.
Are you planning to raise interest rates?
As of now, we are not. We will take a call at an appropriate time.
