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Hyderabad: Three micro lenders active in Andhra Pradesh have reached debt restructuring agreements with their creditors to the tune of 4,950 crore, winning a respite in their struggle to stay afloat amid a slump in business and mounting defaults in the state that is India’s biggest market for loans to the poor. All three are considering a merger.

SHARE Microfin Ltd secured a seven-year, 1,900 crore corporate debt restructuring (CDR) deal with creditors including ICICI Bank Ltd, India’s second biggest commercial bank, and the Small Industries Development Bank of India (Sidbi), said Udaia Kumar, managing director, in a telephone interview. The deal provides a one-year moratorium on repayment.

Another Hyderabad-based microfinance institution (MFI), Asmitha Microfin Ltd, also clinched a CDR deal with its bankers worth 750 crore. Asmitha is led by Udaia Kumar’s wife Vidya Sravanthi. Spandana Sphoorty Financial Ltd reached a 2,300 crore CDR agreement with 39 bankers that also include ICICI and Sidbi, said Nitin Agarwal, vice-president (strategy).

“The CDR package gives us time to keep up our commitments with our bankers, rebuild our relationship with the customers in Andhra Pradesh, and lobby with state and Central governments for a favourable policy," Kumar said.

MFIs in Andhra Pradesh, which makes up one-fourth of the assets of India’s 20,000 crore microfinance industry, have been struggling since the state government cracked down on them in October after complaints that they were using coercive loan recovery practices against the poor.

The state government that month introduced an ordinance, which later became a law, barring MFIs from contacting customers at their doorstep and carrying out weekly loan collections, among other measures. Loan collections fell to as low as 10-15% after the law took effect.

“The CDR package will give these MFIs some relief, as they are facing a liquidity crunch situation. For banks, it’s like buying time and postponing eventuality of their non-performing assets (rising) for sometime," said Anurag Agrawal, vice-president (investment banking) at social sector advisory firm Intellecap.

“As part of the deal, the banks will be getting optional convertible cumulative preference shares. If the MFIs default further, banks can convert the optionals into equity," he added.

SHARE Microfin has around 1,000 crore of recoverable loans in Andhra Pradesh, or 50% of its loan book. The lender provides access to basic financial services for over 3.3 million clients across 19 states in India.

SHARE Microfin also announced that its investors Legatum Ventures and Aavishkaar Goodwell had provided the micro lender with an infusion of fresh equity capital of 4.8 crore.

Asmitha has outstanding recoverables of around 700 crore in Andhra Pradesh—50% of the company’s loan book. “The terms of agreement for Asmitha are similar," Kumar said.

Kumar said SHARE Microfin, Asmitha and Spandana Sphoorty are considering a merger. “The discussions are still at a conceptual stage, but the merger will bring down operating costs, help us gain confidence among our investors, eliminate multiple lending and allow us to comply better with regulators."

Spandana Sphoorty has loans outstanding of 2,900 crore, out of which Andhra Pradesh accounts for 1,900 crore, or 65%.

“As part of the CDR deal, we have to meet our capital adequacy ratio requirements. Now that the deal has been completed, we will look for an equity infusion," said Spandana’s Agarwal.

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