Yes Bank asks MFIs for the repayment of 
100 crore loans
Mumbai: Yes Bank will be recognized as the first commercial bank to seek a loan recall of at least 
100 crore that it had loaned to Microfinance Institutions (MFIs). The MFIs have been negotiating with commercial banks for new loans as they battle for credibility. The role of the MFIs is to provide tiny loans to poor borrowers which they loan from banks and lend at a higher rate, as reported by Dinesh Unnikrishnan from Mint.
Yes Bank sent notices to a few MFIs on 22 December including Ujjivan Financial Services and Equitas Micro Finance India asking them to pay back their loans by 31 December. The people who stated this fact include one from the microfinance industry, a banker and the third is the head of an MFI that received the letter from Yes Bank. They didn't want to be named as the issue is quite sensitive.
"The bank has sent letters to a few MFIs, including us, asking to repay the loans by 31 December, either in part or full,"said the MFI head. "This would be extremely difficult...given the fact that the (loan) collections have fallen and operations have come to a halt."
As mentioned by the bank, the pending amount is almost one-fourth of the lender's total exposure to MFIs, where the figure has doubled ever since the Andhra Pradesh government in mid-October tightened regulations governing them.
"Yes bank is obtaining the scheduled payments from the Andhra Pradesh MFI clients," a spokesperson for the bank said in an email response to queries from Mint. "None of the clients has defaulted or sought restructuring of loans. All scheduled payments have been met by all our five AP (Andhra Pradesh) clients."
The law has made it illegal for the microlenders to ask for weekly repayments and has also placed a demand of a no-objection certificate from local authorities to provide a second loan to a borrower. The law does not permit the lenders from doing business at borrower's doorstep where they collect loan repayments.
Repayment from small borrowers to MFIs in the state fell to as low as 5-10 percent in November following the move. According to the senior bank officials, if the repayment from small borrowers to MFIs in the state remain as low as 5-10 percent, then, MFIs may start non-payment on bank loans.
The report of Morgan Stanley on bank exposure to MFIs released the facts about Yes Bank's loan to amount to 450 crore to MFIs that constitute 1.5 percent of its total loan book. As a percentage of total loans, Yes Bank's exposure to the sector is the highest, along with that of IndusInd Bank, closely followed by other banks like Axis Bank and ICICI Bank who have at least 1 percent or more exposure to the sector.
RBI met leading bankers in Mumbai last week to discuss the issues faced by the microfinance industry and also directed the Indian Banks' Association, a bank lobby, to devise a plan to support the sector. A statement by the central bank said it has sensitized the banks to the need to maintain funding lines to MFIs on merits to prevent contagion.
According to senior industry officials, the loan recall may push microfinanciers into deeper trouble at a time when they are reeling from a steep drop in their debt collection rates in Andhra Pradesh, where some political parties have waged a campaign prompting borrowers not to repay their dues.
100 crore that it had loaned to Microfinance Institutions (MFIs). The MFIs have been negotiating with commercial banks for new loans as they battle for credibility. The role of the MFIs is to provide tiny loans to poor borrowers which they loan from banks and lend at a higher rate, as reported by Dinesh Unnikrishnan from Mint.
Yes Bank sent notices to a few MFIs on 22 December including Ujjivan Financial Services and Equitas Micro Finance India asking them to pay back their loans by 31 December. The people who stated this fact include one from the microfinance industry, a banker and the third is the head of an MFI that received the letter from Yes Bank. They didn't want to be named as the issue is quite sensitive.
"The bank has sent letters to a few MFIs, including us, asking to repay the loans by 31 December, either in part or full,"said the MFI head. "This would be extremely difficult...given the fact that the (loan) collections have fallen and operations have come to a halt."
As mentioned by the bank, the pending amount is almost one-fourth of the lender's total exposure to MFIs, where the figure has doubled ever since the Andhra Pradesh government in mid-October tightened regulations governing them.
"Yes bank is obtaining the scheduled payments from the Andhra Pradesh MFI clients," a spokesperson for the bank said in an email response to queries from Mint. "None of the clients has defaulted or sought restructuring of loans. All scheduled payments have been met by all our five AP (Andhra Pradesh) clients."
The law has made it illegal for the microlenders to ask for weekly repayments and has also placed a demand of a no-objection certificate from local authorities to provide a second loan to a borrower. The law does not permit the lenders from doing business at borrower's doorstep where they collect loan repayments.
Repayment from small borrowers to MFIs in the state fell to as low as 5-10 percent in November following the move. According to the senior bank officials, if the repayment from small borrowers to MFIs in the state remain as low as 5-10 percent, then, MFIs may start non-payment on bank loans.
The report of Morgan Stanley on bank exposure to MFIs released the facts about Yes Bank's loan to amount to 450 crore to MFIs that constitute 1.5 percent of its total loan book. As a percentage of total loans, Yes Bank's exposure to the sector is the highest, along with that of IndusInd Bank, closely followed by other banks like Axis Bank and ICICI Bank who have at least 1 percent or more exposure to the sector.
RBI met leading bankers in Mumbai last week to discuss the issues faced by the microfinance industry and also directed the Indian Banks' Association, a bank lobby, to devise a plan to support the sector. A statement by the central bank said it has sensitized the banks to the need to maintain funding lines to MFIs on merits to prevent contagion.
According to senior industry officials, the loan recall may push microfinanciers into deeper trouble at a time when they are reeling from a steep drop in their debt collection rates in Andhra Pradesh, where some political parties have waged a campaign prompting borrowers not to repay their dues.