India, March, 02 2011 - SKS, the largest microfinance institution (MFI) in the country, has closed a Rs 60-crore (USD 13 million) securitisation deal with a non-banking finance company. It is the first such deal after the turmoil for the sector over recent months in Andhra Pradesh and elsewhere.

SKS, said chief financial officer Dilli Raj, was also negotiating with a group of banks and other institutions for selling another Rs 700 crore of loan portfolio. The deal is expected to close before the present financial year ends (on March 31), as banks scurry to meet their agricultural lending target by then.

Raj would not disclose with which NBFC the deal had been done. It is significant, given the distance banks were keeping from MFIs after a regulatory clampdown and the resulting acute liquidity crunch for the sector. In a portfolio deal, a pool of micro-finance assets are sold to a bank or financial institution at a discounted rate. These assets then become a part of the banks' books, while MFIs are in charge of recovery. The deal assists banks to meet priority sector lending targets: they are required to extend 13.5 per cent of their advances in a year as direct agricultural loans.

The Andhra Pradesh MFI (Regulation of Money Lending) Act severely curbed operations of micro finance in the state, which had accounted for a third of al such loans. The new law put curbs on recovery and fresh disbursements. The state has the largest concentration of MFIs in the country. Subsequently, a Reserve Bank of India-constituted panel under Y H Malegam had suggested restrictions such as capping the MFI lending rate at 24 per cent and loans of not more than Rs 25,000 crore to a single borrower.