Hyderabad, May 14: Fearing massive defaults due to poor micro loan recoveries, city-based SKS Microfinance Ltd, the country’s largest Micro Finance Institution (MFI), on Thursday filed a special leave petition in the Supreme Court seeking a stay on the Andhra Pradesh MFI Act which prevents multiple-lending and coercive practices to recover loans.
A bench of Justices Markandey Katju and Gyan Sudha Mishra issued a notice to the State government, directing it to file a reply and posted the matter to the third week of July. Senior Advocate Fali S Nariman, appearing for SKS, argued that the State had no power to regulate the sector. He also pointed out that NBFC-MFIs fall under the Central list and not subject to state regulation. Last October, SKS had moved the High Court urging it to quash the AP Act.
Responding to its latest move, the State government ruled out the possibility of withdrawing the Act.
“It is a legislation and can’t be withdrawn. Moreover, The Act can be superseded only when a national MFI Bill is approved in Parliament,” Reddy Subramaniam, Principal Secretary, Department of Rural Development, told Express.
SKS gets more than 25 per cent of its business from the State. But due to the regulatory norms of the new Act, collections are stagnating at an unprecedented 10.5 per cent over the past two quarters, bleeding the company’s overall financial performance.
The number of fresh loans also reduced significantly.
“Of the 73,163 applications submitted to the govenment only, 1,648 were approved.
We aren’t asking the state to revoke its Act, but simply want it to make it less onerous,” Vikram Akula, Executive Chairman, SKS had said.
As a result of the Act, operations of 41 NBFC-MFIs have hit a roadblock with collections dipping to as low as 10 per cent.
–Agencies