Rating agency Crisil in early December 2010 downgraded two Andhra-based microfinance institutions (MFI)- Spandana and Asmitha Microfin. Crisil downgraded the institutions on the ground that the new Andhra state legislation would seriously affect the institutions’ creditworthiness. It has also been observed that bank credit has dried up after Andhra Pradesh promulgated the new ordinance regulating microfinance bodies.
Crisil cut its ratings on the debt instruments and bank facilities of Spandana to BBB /P3+ from A- / P1. Asmitha's proposed longterm non-convertible debenture issue and bank facilities has been put at BBB- from BBB. The assessment continues to be on Rating watch with Negative implications.
The downgrading results from Crisil's belief that the implementation of the GoAP ordinance has triggered a chain of events which probably will permanently damage the business models of MFIs by impairing their growth, asset quality, profitability, and capital-raising ability.
Crisil had in its release of 22 November 2010 placed its outstanding ratings on the debt instruments of 12 MFIs including Asmitha on Rating Watch with Negative Implications.
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