Janalakshmi Financial Services: Goldman, Credit Suisse keen to bank on micro lender Janalakshmi, eye Rs 1200 cr investment

KOLKATA/MUMBAI: Stung by demonetisation and non-repayment of loans, India’s largest microfinance company Janalakshmi Financial Services (JFS), which has received the final small finance bank licence as late as April, is in talks with marque investors Goldman Sachs and Credit Suisse to raise fresh equity of about Rs 1000-Rs 1200 crore, said multiple sources aware of the matter.

Existing investors led by TPG, GIC of Singapore, Morgan Stanley Private Equity Asia are also expected to further capitalise the company with fund infusion of another Rs 600-700 crore, a year after the Bengaluru-based company raised its biggest funding round of $210 million from financial institutions at a Rs 4800-crore valuation.

Industry sources said Janalakshmi is facing financial stress and may have to write off loans worth Rs 1500-2000 crore before transforming into a small finance bank. The fund raising is seen largely as an exercise to clean up its balance sheet.

“Both Goldman and Credit Suisse are looking at a structured finance solution. The company is in dire need of equity capital. Of the two, Goldman is the front-runner…the commercial terms are still being negotiated,” said an official tracking the developments.

Spokespersons of Credit Suisse, Goldman Sachs, TPG declined to comment.

Mails sent to Morgan Stanley PE Asia and GIC of Singapore did not generate a response till the time of going to press.

Goldman, Credit Suisse keen to bank on micro lender Janalakshmi, eye Rs 1200 cr investment

“Janalakshmi Financial Services has a legacy of maintaining a well capitalised balance sheet. Given its impending transition to a Small Finance Bank (SFB), we are exploring options to remain well-capitalised at all times. We will let you know on further developments,” the company’s spokesperson told ET in response to its detailed questionnaire.

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Janalakshmi grew very fast since 2015 and industry watchers say high growth often leads to larger stress, especially in difficult times.

Its loan portfolio jumped from a mere Rs 3734 crore at the end of March 2015 to Rs 10,983 crore at the end of March 2016 and Rs 12,416 crore at end of 2016.

Reliable sources in the industry said that Janalakshmi’s portfolio at risk (PAR) for 30 days was 30% on a GLP of Rs 12,551 crore at the end of March 2017, compared to the industry average of 14.1%.

“Janalakshmi was growing faster than the other MFIs and was one of the largest MFIs when high-value currency notes were discontinued. It (the government announcement) has impacted the entire industry and as Janalakshmi was a large entity, it proportionately impacted the MFI more than others.” said Ratna Vishwanathan, chief executive officer of Microfinance Institutions Network (MFIN).

Janalakshmi is one of the eight micro lenders which received Reserve Bank of India’s (RBI) approval to start a small finance bank. But unlike several of its peers such as Equitas or Ujjivan which have already transformed themselves into small banks, Jana Small Finance Bank is expected to start operations only in the second quarter of the current financial year. It plans to set up 300 bank branches during the year covering the major locations in India.

PAR is the proportion of loans overdue (for a specific number of days) to the overall loans outstanding. The asset quality of most microfinance organisations has taken a hit post demonetisation, but the extent of the decline has surprised most analysts.

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India Ratings & Research said that in case collections (on portfolio as on December 31, 2016) do not increase from the current level, MFIs with significant exposure to affected states and with aggregate loans under management of Rs 1000 crore and above could incur credit costs and capital erosion.

Rating company ICRA had in March cut the long term rating outlook of Janalakshmi to negative from stable, as the company’s repayment collection suffered after demonetisation.

Set up by a former Citi banker Ramesh Ramanathan, Janalakshmi takes banking to the unbanked, offering micro loans to women, loans to small and marginal farmers, loans to urban poor individuals for home improvement and education, among others. It also provides long-term business loans to micro, small and medium enterprises as well as loans for equipment and machinery. It provides life insurance and micro pensions, too.

According to Janalakshmi’s website, it offers micro loans under joint liability group format up to Rs 50,000. The MFI offers individual loans up to Rs 2 lakh, enterprise loans up to Rs 6 lakh and MSME/long term business loans up to Rs 50 lakh.

The lender had 519 branches in 20 states and 58.9 lakh customers as of March 31, 2017. It has more than 16,000 employees. In FY 16, the company posted Rs 160 crore profit on an income of Rs 1784 crore.

Since 2006, JFS has attracted a host of investors ranging from Michael and Susan Dell Foundation, Citi Venture Capital International Growth Fund, among others. From 2013, bigger PE investors such as Morgan Stanley Private Equity came on board while some of the early backers exited. In February 2016, the firm raised its biggest funding round which included $150 million (Rs 1000 crore) fresh investment and secondary share sales. An additional $60 million was put in to buy out secondary shares.

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