Microlenders Trident and Basix face risk of closure as debt restructuring plan flounders

Hyderabad-based Trident Microfinance Pvt Ltd may have to shut its operations after the lenders to the microfinance institution removed the company from the loan recast facility and denied additional funding, according to a report in Mint.

The firm has outstanding debt obligations of around Rs 140 crore and the corporate debt restructuring (CDR) cell has directed the consortium of 21 lenders to Trident under which the company is required to pay 18 per cent or Rs 25 crore of the outstanding obligations to its lenders.

Trident, which is backed by two funds managed by Caspian Advisors—Bellwether Microfinance Fund and India Financial Inclusion Fund—has nearly Rs 112 crore of bad loans in Andhra Pradesh. The one-time payment required for settling CDR would, in effect, result in closure of Trident, as it has just Rs 18 crore worth of assets, the report said.

Under the CDR process, banks increase the repayment period or cut interest rates for troubled borrowers and at times also agree to a negotiated cut in the principal outstanding amount.

Another microfinance institution which is in trouble is Vijay Mahajan-promoted Bhartiya Samruddhi Finance Ltd or Basix, which is backed by names like IFC, Matrix Partners and Lok Capital.

Basix had entered CDR in mid-2012 to restructure loans worth Rs 650 crore and the lenders have asked its promoter to bring in fresh equity as part of the process which it has not been able to meet.

“We couldn’t raise equity as per the requirements of the CDR. We are still trying,” Basix’s chief Mahajan told the newspaper.

Both these microlenders are struggling from the regulatory clamp imposed by the state of Andhra Pradesh, a key market for such finance, three years ago following reports of farmer suicides due to alleged predatory recovery practices by such lenders.

Some firms have recovered from the regulatory flux and resulting losses; these include SKS Microfinance, previously the largest microlender in the country and the only player which is publicly listed.

The central bank had come out with clarity and regulatory norms for the microlenders some time back and there have been some positive undercurrent of private investors returning to back such firms. Last year, Janalakshmi Financial Services raised Rs 350 crore from a group of existing and new investors in one of the single largest funding round in any microfinance firm ever.

(Edited by Joby Puthuparampil Johnson)

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