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Key changes in the RBI guidelines include revised provisioning norms and asset classification for NBFC-MFIs; relaxation in the minimum requirement for net owned funds, and in the minimum capital adequacy ratio requirement for 11-12 for MFIs (micro-finance institutions) with sizeable exposure to Andhra Pradesh
New Delhi: The Reserve Bank of India’s (RBI) recent guidelines on the microfinance institution (MFI) sector will prove to be a positive and structurally strengthen it over the long run, reports PTI quoting ratings agency Crisil.
“RBI’s revision in provisioning norms and change in recognition of non-performing assets (to 90 days overdue from 180 days overdue) is unlikely to impact the profitability of the non-Andhra operations of Crisil-rated MFIs over the medium-term,” Crisil said in a study on the sector.
RBI’s recent guidelines have created a new category of non-banking financial companies (NBFCs) called NBFC-MFIs. The guidelines also highlight the need for transparency in interest rates, and address issues on multiple lending and coercive recovery.
Key changes in the guidelines include revised provisioning norms and asset classification for NBFC-MFIs; relaxation in the minimum requirement for net owned funds, and in the minimum capital adequacy ratio requirement for 11-12 for MFIs (micro-finance institutions) with sizeable exposure to Andhra Pradesh.
Crisil said that a year after the Andhra Pradesh government promulgated its ordinance for (MFIs, leading to a major upheaval in the sector, the MFI players are redesigning their business models.
Driven by moderation in growth, decline in profitability and subdued funding prospects in their core business, several MFIs are starting new ventures that are focused on secured asset classes or leveraging their branch networks to offer other retail products, it said.
“While most of these new business initiatives are at an early stage, MFIs’ ability to develop systems and processes, and scale up operations will shape their business risk profiles,” Crisil director Nagarajan Narasimhan said.
The MFI sector’s growth and profitability prospects have moderated since implementation of the Andhra ordinance, because of the subdued funding environment and operating challenges associated with regulatory restrictions on multiple lending, loan size, and end-use of loans.
While there has been some regulatory clarity and selective lending by banks in the last few months, funding to the sector has not picked up. Crisil-rated MFIs have raised Rs500 billion from banks and alternate sources in 11-12 much lower than the pre- ordinance levels, it said.
MFIs are, therefore, diversifying their business models by starting new ventures aimed at entering other asset classes mostly secured, such as loans against gold jewellery, housing and vehicle financing loans), Crisil said.
Some MFIs have moderated their growth plans, while others have opted to leverage their branch network to offer retail products, it added.
“We are planning to raise Rs500 crore. The price of the issue will be decided at the time of issue. Before March we want to complete the issue. We are talking to the merchant bankers,” MR Rao told reporters
Hyderabad: SKS Microfinance, the only listed micro lender, on Wednesday said it would raise Rs500 crore through qualified institutional placement (QIP) route in the current fiscal, reports PTI.
The company’s board had given its approval for raising up to Rs900 crore, a top official of the company said here.
Qualified institutional placement is private placement of shares with institutional investors.
SKS Microfinance MD and CEO MR Rao said it is facing problems in West Bengal and Gujarat which resulted in a drop in collections in those states.
“We are planning to raise Rs500 crore. The price of the issue will be decided at the time of issue. Before March we want to complete the issue. We are talking to the merchant bankers,” Mr Rao told reporters.
Replying to a query, Dilli Raj, CFO of SKS, said the net risk exposure of the company on account of poor collection from Andhra Pradesh is Rs337 crore and according to RBI guidelines it has time till March 2012 to decide about the writing off the risk exposure.
Due to local and process-related issues, collections in West Bengal and Gujarat have dropped to about 86% and 80.9% respectively in the second quarter, Rao said.
Barring Andhra Pradesh, the average collection efficiency stood at nearly 97% in the second quarter.
West Bengal is the third largest market after Andhra Pradesh and Karnataka for the Hyderabad-based company which operates in 18 states.
On projections, Mr Raj said the company expects microfinance portfolio outstandings of Rs3,000 crore and revenues of Rs900 crore by FY 12-13 with a net profit of Rs50 crore.
The company reported revenues of Rs308 crore for the first half of the current fiscal, down by 55% Y-o-Y.
Going forward, the company will adopt a strategy to ensure that its net exposure of in state will not be more than 10% of the total exposure, a company official said.
Mr Rao said the company will invest Rs15 crore over the next three years for strengthening customer grievance redressal and client protection programmes.
The company also plans to cap the return on assets of its micro-finance business at 3%.
SKS Microfinance said it is also looking at expanding its Sangam stores, mobile handset loans and gold loans.
“Pursuing the cross sell route, we plan to service 15,000 Sangam Stores (present number: 4,000) and extend loans for the purchase of 5.5 lakh mobile handsets this year (2.8 lakh loans advanced so far),” Mr Rao said
He said SKS Microfinance will offer gold loans from 50 branches this fiscal.