A city-based public sector bank is mulling to start a Non-Banking Financial Company, in which the Andhra Pradesh government will join in the equity participation, to extend microfinance credit to the poor, said a state government official.

The State government move may spell doom to the already crippled microfinance institutions with significant exposure in the State.

“A couple of banks are in touch with us. We also want to take part in the equity participation. By August 15 we may start operations,” R Subrahmanyam, principal secretary, told PTI.

He said the feasibility study has been entrusted to Andhra Pradesh Mahila Abhivruddhi Society (APMAS) a non-governmental public society stands under the Foreign Contribution Regulation Act.

MFI have preferred to focus more in the areas where banking network is active and on the groups that are already in the financial inclusion, taking advantage of the awareness of poor in group dynamics and lending methodology, the State government had earlier said.

The proposed NBFC would have Rs 500 crore of authorised capital and Rs 150 crore of paid-up capital.

Besides, a PSU Bank, both the central government and the State government would join the company as equity investors along with the National Bank for Agriculture and Rural Development (Nabard).

Once the feasibility study is completed, the proposal will be sent to Reserve bank for further proceedings and approvals, Mr. Subrahmanyam said, adding the NBFC will extend microfinance to mandal samakhyas in the state through self help group (SHG)-bank linkage programme.

The MFI lending in the State has come down drastically after the State government came out with a regulation to control microfinance activities.

Microfinance Institutions Network strongly criticised AP Microfinance Bill and said it the Bill will create hurdle for the legitimate RBI-registered microfinance in providing access to finance for the poor.

“The issue of unavailability of credit to 97 lakh borrowers and outstanding loans of Rs 7,500 crore is looming large before the industry and passing the bill without required amendments will impact the ability of MFIs to function smoothly,” Alok Prasad MFIN CEO had said earlier.