Microfinance Focus, October 19, 2011: Kotak Mahindra Bank Ltd has taken the promoters of Trident Microfin Pvt. Ltd to court for defaulting on loan repayments, a Mint report states. With Kotak’s action, Andhra Pradesh based Trident Microfin becomes the first MFI to be sued for defaulting on loan repayments post microfinance crisis.

Puli Kishore Kumar, Managing Director and CEO of Trident reportedly said, ““Kotak has sent a legal notice to us asking us to pay up our dues within a fortnight from the date of the notice”.

The bank initiated legal action against Kumar and five other directors after some cheques issued to it by Trident bounced. Trident was making repayments on Rs4 crore of loans to Kotak until January, after which it began defaulting.

According to the report, senior industry officials are critical of Kotak’s action as Trident is one of the five MFIs in Andhra Pradesh that became part of a corporate debt restructuring (CDR) plan. Under the current norms, a company is admitted to a CDR plan if 75% of lenders in terms of loan value agree to the proposal. Kotak Mahindra is not part of Trident’s CDR programme.

Kotak’s legal notice comes before a CDR committee meeting scheduled for Wednesday. However, once a company is part of a CDR plan, banks don’t initiate individual action against the firm.

Share Microfin Ltd, Asmitha Microfin Ltd, Spandana Sphoorty Financial Ltd and Future Financial Services Ltd are the other four MFIs in the CDR plan.

Kotak should have taken a more calibrated approach in consultation with the banks in the CDR that have signed off on the bailout package, said Alok Prasad, chief executive of Microfinance Institutions Network, an association of microlenders. “The bank has taken an unnecessarily aggressive posture.”

Trident has total loans of about Rs150 crore from around 23 banks, including State Bank of India and Indian Overseas Bank.