RBI’s new securitisation guidelines will hurt us: MFI industry

"The RBI has to balance between some additional liquidity facilities for MFIs at this stage. As long as the quality of the asset is good, three months or six months does not make that much of difference," Vijay Mahajan, president of the Microfinance Institutions Network (MFIN) said

Hyderabad: The cash-starved microfinance (MFI) sector will be severely hit by if the new draft guidelines issued by the Reserve Bank of India (RBI) on securitisation of loan portfolios are implemented, reports PTI.

Last week, the RBI released a revised draft of the securitisation guidelines.

In the case of microfinance loans, the minimum holding period of the loan before securitisation will be six months from the due date of the first instalment.

Securitisation is the process of converting existing assets, or future cash flows, into marketable securities.

The microfinance industry has been in the practice of assigning repayments from borrowers to investors in securities.

Currently, RBI allows securitisation of loans held by non-banking finance companies (NBFCs) after three months from the first instalment.

A typical MFI loan spreads across one year, with a monthly or weekly repayment cycle.

The MFIN board that is meeting on 10th October will discuss the impact of the new guidelines and will give representation to the RBI to reconsider its decision, said Vijay Mahajan, president of the Microfinance Institutions Network (MFIN), a self-regulating body of MFIs.

"From the point of view of risk management, it definitely is ok. However, the RBI has to balance between some additional liquidity facilities for MFIs at this stage. As long as the quality of the asset is good, three months or six months does not make that much of difference," Mr Mahajan told PTI.

"We will be requesting the RBI, for the transitional period, till the banking sector lending to MFIs is restored to normalcy-at least one to two years-they should consider three months' tenure for a year-long loan and six months for a longer tenure," sad Padmaja Reddy, the promoter of Spandana Sphoorty Financial.

In this regard, Ms Reddy pointed out that the microfinance sector has been feeling the heat from banks and other financial institutions after the Andhra Pradesh government introduced a Microfinance Act regulating the sector last year.

Andhra Pradesh accounted for almost 30% of the microfinance lending in the country before the new Microfinance Act was implemented in the state.

"The new guidelines of the RBI would not really help the MFI sector, it would rather curb the MFIs in terms of raising loans. Post-AP crisis, our (microfinance companies) rating has been deteriorated. We cannot even look at even other instruments, such as commercial paper and all," Ms Reddy said.

Mr Mahajan said one of the RBI's responsibilities is to ensure that enough credit is available to MFIs at a lower level of interest.

"There will be certainly some impact on the MFI industry.

Only tail of the loan can be securitised. There is refinancing possible with a constraint that you will have to hold it at least for six months," Nidhi Bothra, the vice-president of securitisation consultant Vinod Kothari, said on the new guidelines.

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ONGC may invite Cairn, Vedanta for signing agreement this week

Even before the Cairn-Vedanta deal was announced in August last year, ONGC had demanded that like all other taxes, royalty be made cost recoverable by adding it to the project costs. All project cost are first deducted from revenue earned from oil sales before profits are split between partners

New Delhi: State-owned Oil & Natural Gas Corporation (ONGC) may this week invite Cairn India and Vedanta Resources for signing of an agreement on sharing of statutory levies on the all important Rajasthan oilfields, reports PTI.

The board of ONGC had on September 27 agreed to waive its pre-emption rights and give consent to London-based miner Vedanta buying majority stake in Cairn India.

But the state-owned oil explorer had added a caveat that the no-objection certificate or NOC will be issued only after Cairn and Vedanta sign a legal document agreeing to share royalty and pay cess on oil produced from Rajasthan fields.

"ONGC may in next couple of days send a draft agreement to Cairn India and upon their agreeing to the language and content, the pact will be signed within this week," a source in knowledge of the development said.

Upon signing of the agreement, ONGC will give NOC to the deal but the transaction will conclude only after the home ministry gives security clearance to Vedanta buying majority stake in Cairn India.

The need for a legal document had arisen because Cairn India insisted on ONGC giving no-objection before agreeing to conditions on royalty and cess that the government had set for approving the $9 billion transaction.

The source says Cairn doubts if partner ONGC would give consent if it agrees to the conditions. Similarly, ONGC thinks Cairn may backtrack on royalty and cess payments if it gives consent first.

Cairn India's 97% owners, including parent Cairn Energy of the UK, and new management Vedanta had accepted the riders set by the government.

ONGC, for whom the Rajasthan project had been a losing proposition because it paid royalty not just on its 30% share but also on Cairn India's 70% interest, has demanded an equitable sharing before the deal was cleared.

The government accepted ONGC contention and conditioned its approval to the deal on Cairn making royalty payments cost recoverable and agreeing to pay cess on its 70% share.

Cairn India does not pay royalty on its 70% stake in the Rajasthan fields. Royalty, as per the contract, is paid by ONGC, which got a 30% stake in the field for free.

Even before the Cairn-Vedanta deal was announced in August last year, ONGC had demanded that like all other taxes, royalty be made cost recoverable by adding it to the project costs. All project cost are first deducted from revenue earned from oil sales before profits are split between partners.

Cairn had opposed this as it would lower its profits. It also believed cess, likely royalty, was also an ONGC liability even though the contract for Rajasthan fields is silent on any such sharing.

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