Microfin entities may come under tighter regulations: Report

New Delhi: Microfinance institutions (MFIs) in the country may be subject to stricter regulations considering the "socio-political sensitivity" involved in rural lending activities, reports PTI quoting a brokerage house report.

At a time when the government is looking at ways to increase rural lending, MFIs have attracted criticism from various quarters for charging high interest rates on loans.

In a report on MFIs, domestic brokerage Indiabulls Securities said the "the business of MFIs is likely to come under regulatory or judicial intervention considering the socio-political sensitivity to rural lending."
This trend has already been seen in Andhra Pradesh and Kerala where governments have mandated non-banking finance companies (NBFCs) and MFIs to register under local money-lending laws, which means that the government has the right to cap or monitor the interest rates charged to borrowers.
The report, done by two analysts, Saikiran Pulavarthi and Deepak Agrawal, comes at a time when the government is of the view that MFIs should not lend funds at usurious rates and the finance ministry has asked public sector banks to ensure that these institutions do not charge a loan rate of above 24%.
Compared to urban lending, MFI lending rates in the rural areas are much higher.
If MFI lending grows on a mass scale, one would have to wait to see how the local leadership views the popularity of such lendings and the lenders, the report said.
Analysts are of view that considerable socio-political sensitivity can be associated with lending at high interest rates to the poor.
"The entry of an 'apolitical' Messiah providing cheap loans will have ramifications (threat of erosion of vote banks, dilution of leadership of the panchayats, zamindars, etc). In such a scenario, MFIs will face instant ostracisation due to obvious reasons," Mr Pulavarthi said.
"Also, farm loan waivers have always been a vote-bank tool. We have seen such instances occurring in Karnataka last year. Any similar moves of this kind could hamper the business of MFIs," the report said.
The number of MFIs has increased manifold in the last few years and therefore analysts believe the risk of multiple MFI lending to same individual is pretty high going forward.
Since microfinanciers take loans from banks and lend it to customers at rates as high as 36%, the government is now insisting that public sector lenders should ask MFIs to cap their lending rates in the range of 20%-24% as a pre-condition to access bank finance.

On its comment over SKS Microfinance, the only listed MFI in the country, Indiabulls analysts said they believe that the execution risk on a pan-India basis is quite high.
SKS' loan book is primarily concentrated in five states, which contribute 71% of total loans.
"The new states where SKS is now expanding offer great opportunity; however that comes with high execution risk, especially because consumer behaviour, social and religious dynamics are different from region to region, and competition is already strong in states where SKS will enter," they added.


Core infrastructure industries grow by 3.7% in August

New Delhi: Growth of core infrastructure industries slowed to 3.7% in August, as compared to 6.4% in the same month last year, reports PTI quoting data released by the government.

Expansion of the six core industries - crude oil, petroleum refinery products, coal, electricity, cement and finished steel - aggregated 4.1% during the first five months of this fiscal as against 4.8% in April-August 2009-10, the data of commerce and industry ministry said.

These six segments account for 26.7% of the country's total industrial output.

Growth in the petroleum refinery production contracted by 2.3% against a positive growth of 3% August 2009.

As per the data, the crude oil output growth was 15% while it had contracted by 2.5% in August 2009.

Production of both coal and electricity slowed to mere 1% each, as against robust growth of 13.3% and 10.2% in August 2009, respectively.

Similarly, cement production too slowed to 1.6% from 17.5% in the year ago period.

However, finished steel output grew by 7.7% in August this year. It was 0.3% in the same month last year.

Meanwhile, the growth of the core infrastructure sector has been revised upwards to 4% for July from the earlier provisional estimate of 3.9%.


Sterlite awaits full text of HC order to chalk future strategy

New Delhi: A day after the Madras High Court ordered closure of its copper smelter plant in Tuticorin for non compliance of environment norms, Sterlite Industries today said it deploys ecologically advanced technology and is awaiting full text of the order to decide on future course, reports PTI.

The high court yesterday held that the facility should be closed because of its proximity to an ecologically fragile area and faulted Sterlite, a subsidiary of UK-based Vedanta Group, for not developing a green belt around the plant in southern Tamil Nadu.

"...An order has been passed by the high court, on 28 September 2010, ordering closure of the plant. The company is awaiting full text of the order so as to decide on necessary recourse measures," the company said in a filing to the Bombay Stock Exchange.

It said, "The Tuticorin smelter has been operating for more than 12 years and has been in compliance with necessary rules and regulations and global standards. It deploys ISAS melt process, which is considered globally as an environmentally advanced technology."

The Anil Agarwal-led company employs around 3,000 people in Tamil Nadu, and contributes "about Rs 1,600 crore to the exchequer annually," it added.

The legal blow comes a month after the central government rejected clearance to the Vedanta group's Rs7,000 crore bauxite mining project at Niyamgiri hills in Orissa, for serious violation of forest laws.

The government had also sent a show-cause notice to the company as to why the clearance for the one million tonnes per annum alumina refinery at Lanjigarh in Orissa should not be cancelled in view of gross violation of environment norms.

The Madras High Court division bench held yesterday that the plant was within 25km of an ecologically fragile area and the company has failed to develop a green belt of 250metre width around the plant.

It directed the Tuticorin district collector to take necessary steps for re-employment of the workforce so as to protect their livelihood.

The court said there has been unabated pollution by the company, which should be stopped at least for now so as to protect the Mother Nature from being 'tarred'.

The court also noted that the plant was set up amid protests from people of different sections at Tuticorin.

The Tamil Nadu Pollution Control Board (TNPCB) had granted permission to Sterlite to run a unit to manufacture 391 MT of blister copper and 1,060 tonnes of sulphuric acid.


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