Microfinance Focus, December 28, 2011: Rating agency CRISIL has downgraded the rating of microfinance institution, Bhartiya Samruddhi Finance Ltd (BSFL) to ‘CRISIL C’ from ‘CRISIL BB-’ and has removed its rating on the debt instrument and bank facilities of BSFL from ‘Rating Watch with Negative Implications’.

The downgrade reflects BSFL’s weakened financial flexibility, with severe strain on liquidity, posing a threat on the long-term sustainability of the company’s operations. The ratings also reflect BSFL’s reduced net worth and weak overall capitalisation.

A CRISIL note says that BSFL liquidity has considerably weakened because of the non-availability of additional bank funding as well lack of fresh capital infusion into the company since the Andhra Pradesh crisis.

BSFL is actively looking at rescheduling its loans and has submitted a proposal to all its bankers in early December 2011. The company is in negotiation with its existing bankers and is looking at alternative scenarios for restructuring its existing outstanding debt; this, however, is yet to be finalised, it says.

The company estimates that the finalisation of a proposal concerning the rescheduling its term loans will take at least four to six weeks.

In the interim, CRISIL believes than it will be exceedingly difficult for BSFL to meet its debt obligations in a timely manner. Although BSFL has been servicing its debt in time so far, the net cash position of the company was stretched in December 2011. BSFL has a high likelihood of delaying or defaulting on the repayment of its loans as per the original schedule.

CRISIL will continue to monitor the timeliness of BSFL’s debt repayment and the impact of the terms of the final restructuring of the outstanding loans on the company’s credit risk profile.

BSFL is an NBFC-MFI which provides microfinance (credit and insurance) services and knowledge-based technical assistance.

BSFL’s total assets under management were Rs.9 billion as on September 30, 2011 compared to Rs.12.5 billion as on March 31, 2011. The company reported a net loss of Rs.1.3 billion for the six months ended September 30, 2011, compared to a profit after tax of Rs.302 million for the six months ended September 30, 2010.