Money & Banking
Mudra Bank is not a game changer, says report, based on experience of SKS Microfinance
With 10% cap on spread, large NBFCs and MFIs like SKS will not see any improvement in margins or profitability and a cheaper loan from Mudra Bank may not make it into a game changer, says Religare 
 
SKS Microfinance Ltd (SKSM) on Wednesday said the Micro Units Development & Refinance Agency (MUDRA) has sanctioned a refinance line of Rs100 crore to the lender at an interest rate of 10%. However, since there is a 10% cap on spread for all large non-banking financial companies (NBFCs) and micro-finance institutions (MFIs), lower funding cost does not improve margins or profitability, says Religare Capital Markets Ltd in a report.
 
At present, the average funding cost of SKSM is about 11.9%, while incremental funding cost is around 11.2%.
 
Religare, in its previous report has said that Mudra Bank's micro unit refinance scheme has turned out to be a non-starter due to the strict caps on onward lending spreads. As against a current corpus of Rs5,000 crore, Mudra Bank has disbursed just Rs150 crore to banks and MFIs since April 2015. 
 
The RBI has fixed the rates at which Mudra Bank can lend funds under its refinance scheme for unsecured micro loans. For banks, this will be at cost of funds (COF) + 0.75%, for co-operative or regional rural banks at COF + 3.5%, and NBFCs or MFIs at COF + 4 to 6%. The central bank has also capped the spreads that banks, NBFCs and MFIs (Fig2) can charge borrowers if they avail of refinancing from Mudra. While banks have to lend at base rates, NBFCs and MFIs cannot earn spreads over 6% and 10% respectively, implying lending rates of 16-18% for NBFCs and 20-22% for MFIs. This renders Mudra refinancing unattractive due to the high operating and credit costs involved in unsecured microfinance lending.
 
This also means, small finance banks (SFB) can avail loans from MUDRA at much lower rate than MFIs. "Mudra is lending at 6.75% to universal banks. However, borrowing rate for SFB is not decided, in our view it will be lower than MFIs and marginally higher than rates charged to universal bank i.e. between 6.75-10%. One of the main objectives for Mudra is to enable banks to fund low-income people at much reduced cost. Small finance banks will be better off as compared to MFIs, if they get funding at a cheaper cost by about 100-200bps," Religare said in its latest report.
 
Religare feels MFIs who got the small finance bank license will see rating upgrades and in turn reduced cost. "We believe SFBs will see rating upgrades by at least 2-3 notches which will result in lower cost of funds. In our view, their ability to tap wholesale market has already improved (recently few MFIs who got the license have done CP issuance at 10.5%). Post conversion into a bank, SFBs will have similar or lower cost of funds compared to MFIs resulting in immense competition," it concluded.
 
SKS Microfinance closed Wednesday 6.4% up at Rs425.70 on the BSE, while the 30-share benchmark ended the day marginally down at 27,039.

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COMMENTS

Raghavendra

1 year ago

Religare is spreading lies about SKS Microfinance. Even in the face of spectacular results and revised guidance it is trying to beat the stock hook and crook. Shame on Parag Jariwala

Raghavendra

1 year ago

Religare is spreading lies about SKS Microfinance. Even in the face of spectacular results and revised guidance it is trying to beat the stock hook and crook. Shame on Parag Jariwalas

Why 10-year G-sec yields are still holding up
Sustained selling pressure from banks and corporates and net supply are the reasons as to why G-sec yields are not coming down despite a 50 bps rate cut, says a State Bank report
 
Even after the 50 basis points (bps) cut in repo rate by the Reserve Bank of India (RBI) last month, the 10-year G-sec yield is still adamant at 7.60% primarily on sustained selling pressure from banks and corporates. However, going forward, the yields will gradually soften says State Bank of India (SBI) in its Ecowrap report.
 
It said, "This (yields still at 7.60%) is perplexing, as trends suggest that the spread between repo rate and 10-year yield has been at around 50 bps in the last couple of months on an average. Hence by this logic, 10-year yield should drop to 7.25%, or at least should have breached 7.5%." 
 
Net supply is one of the reasons why G-sec yields are not coming down, the Ecowrap report says, adding, "In October 2015, there is a net supply of Rs75,000 crore of Government securities, highest among the second half. Even after adjusting for redemptions and investments from foreign institutional investor (FII) during October, the net supply will still be around at Rs4,000 crore. This net supply is one of the reasons why G-sec yields are not coming down."
 
 
According to the Government borrowing calendar, it will raise only Rs2.34 lakh crore through market borrowings, excluding Rs15,000 crore via sovereign gold bonds, in the second half of current fiscal year. The Government, as per the Budget 2015-16, plans to borrow a total of Rs6.01 lakh crore from the market this fiscal. It had borrowed about Rs3.5 lakh crore during the first half of FY2016, which is over 50% of the annual target.
 
"We however believe that going forward, the yields will gradually soften on many accounts. Firstly, the G-sec auctions till March will now be at an interval of every fortnight, instead of customary weekly auctions. Secondly, CPI inflation will breach the RBI’s target at least by 50 bps on January 2016. Thirdly, the ECB quantitative easing with US Fed uncertainty on rate hike will impact G-sec yields on lower side. Consequently, we expect that 10-year G-sec yield would be around 7.25-7.30% (old) and 7.10-7.15% (new) by March 2016. And fourthly, cumulative net buying position by market players indicates further softening of yields," the report added.

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Undertrial dies mysteriously in jail; wife effectively uses RTI
Namdeo Sable, an undertrial prisoner in Beed Central Jail, was murdered. His wife took obtained evidence from RTI and went to the High Court, which has directed the state government to pay her compensation of Rs5 lakh with 9% interest
 
The power of Right to Information (RTI) is manifested in a myriad ways. In a rare example of the effective use of RTI, the wife of an undertrial, who suspiciously died in the Beed Central Jail, sought legal intervention based on the documents procured through RTI, and then forced the Maharashtra government to cough up compensation of Rs5 lakh through the High Court. Recently, she received the compensation from the state government. 
 
The Aurangabad Bench of the Bombay High Court, on 14 July 2015, ordered that, ``Information was collected under the Right to Information Act and death due to head injury was confirmed.’’
 
The Court ordered compensation for the family, citing the fact that a prisoner is a State’s responsibility and stated that, “In spite of Government Resolutions, when in the present matter it became evident that the victim suffered homicidal death for which the employees of the jail have been even prosecuted, the Government failed to extend any compensation to the petitioners. They have been left to fend for themselves. Looking to these aspects, there is no reason why the State should not be saddled with interest as well as costs of this petition.” 
 
“We make it clear that the State is duty bound to take action against its employees who perpetuated atrocities on the victim causing his death and also employees who tried to cover up the incident to suppress truth. The officials who used criminal force against the prisoner are responsible. Similarly, officials who may have been present when criminal force is used but who do not take preventive action to protect the prisoner or who do not report the incident must all be said to be liable and responsible for the criminal acts perpetuated against the prisoner.”
 
The High Court asked state government to pay her the compensation within two months along with interest. It was a historic feat for young Asha, who had petitioned against the state government, on the basis of the RTI documents, with her three children, between 6 months and 4 years, who were also petitioners.
 
RTI Activist Vijay Kumbhar says, “God forbid, such a tragedy should not occur for any family, but such a courageous use of RTI by the undertrial’s wife goes to prove that, if you take efforts to get such crucial information under the Act, you can take the issue to the logical end. Each such affected person, should fight for justice via the path of RTI.”
 
On 28 March 2009, at around 2am, undertrial prisoner, Namdeo Sable was rushed to hospital but was declared dead. His 25-year-old wife, Asha, repeatedly requested the jail authorities to let her know the real cause of his death. The post-mortem report had mentioned head injuries, newspapers reported the same and the first information report (FIR) was also lodged against some employees of the jail; but the authorities ignored her request. They spread the word that Namdeo was fine until the night of that day and died due to some internal bleeding. Sable, being the sole bread winner, the family demanded adequate compensation, besides punishment of the culprits. But all fell on deaf ears. 
 
Asha then filed a RTI application at the Jail Superintendent’s office, demanding a copy of the medical reports, the post mortem report and a copy of the FIR.
 
Thereafter, she filed a criminal writ petition in the Aurangabad Bench of the Bombay High Court, stating that a prisoner is the State’s responsibility and hence, he should have been protected from inmates and others who harmed him. 
 
The Court observed that the Jail had failed to use technology like night vision cameras, which would have captured the incident on video. In the absence of this, the state must compensate the affected family, which has lost its bread winner, the Court ruled. 
 
Following the Court order, Maharashtra Home Ministry on 3 October 2015 directed that the family of Sable, comprising his wife and three children be paid a compensation of Rs5 lakh with 9% interest from the day of his death on 28 March 2009, up to the time that compensation has been paid to her (which was paid recently).
 
This is indeed a great example of how RTI has sunk into the grassroots and is being used by the common man, for justice. Though of course, the sum of compensation is no match to the precious life that was lost.
 
 
(Vinita Deshmukh is consulting editor of Moneylife, and also convener of the Pune Metro Jagruti Abhiyaan. She is the recipient of prestigious awards like the Statesman Award for Rural Reporting which she won twice in 1998 and 2005 and the Chameli Devi Jain award for outstanding media person for her investigation series on Dow Chemicals. She co-authored the book “To The Last Bullet - The Inspiring Story of A Braveheart - Ashok Kamte” with Vinita Kamte and is the author of “The Mighty Fall”.)

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COMMENTS

KAVIRAJ B PATIL

1 year ago

For the last 20 to 25 years, I have been seeing that compensation has rarely exceeded Rs.2 to 3 lakhs in case of death. In the case of this family of three, the compensation of Rs. 5 lakhs is not enought to set up a small shop. If the whole amount is kept as a FD, the interest will be less than Rs.40,000 a year. For real justice, it is imperative that justices be more generous and see that families do not suffer for no fault of theirs.

Sai Rel

1 year ago

Do you think just 5lakhs compensation with meagre 9% interest will save the lives of one mother and three children. This is what you are saying happily to the world. I hope you people can understand a value of a breadwinner. Is that compensation for a person, who if alive, can make lot much money to his family, was murdered and who will compensate his loss of live and his opportunity cost of his capable life income, to that family

Bosco Menezes

1 year ago

Incredibly sad that this person lost his life, yet a great example of the power of this great tool "RTI".

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