Not surprisingly, India’s only listed microfinance lender, SKS Microfinance Ltd, posted a loss of Rs 69.7 crore in the fourth quarter (Q4) of 2010-11 compared to a net profit of Rs 62.9 crore during the same period previous year, as the company went through poor repayment rates and also faced a new policy regime in Andhra Pradesh, which is its main market.
The company's revenue also fell to Rs 193.8 crore from Rs. 304.5 crore in the same period.
For the full year year ended 31 March, 2011, the net profit declined to Rs 111.6 crore from Rs173.9 crore in the previous year, as the company had a good first half. The full-year revenue increased to Rs 1,269.5 crore from Rs 958.5 crore.
The company has also offered higher loans and advances in 2010-11 which increased to Rs 3,653.5 crore from Rs 3,015.7 crore in the year-ago period.
The other highlights of the financials are that the company set aside a much higher Rs 106.2 crore for provisions and write-offs in Q4 compared with Rs 14.8 crore a year earlier. This is because the Hyderabad headquartered lender had adopted much stringent provisioning norms than that required by the Reserve Bank of India (RBI).
For the full year, credit cost rose to Rs 317.7 crore from Rs. 51 crore in the previous fiscal.
The lender said its financial foundations are in tact with a net worth of Rs. 1,781 crore, cash and balances of Rs. 558 crore, and capital adequacy, expressed as a ratio of capital to risk-weighted assets, of 45% as of March-end, according to a statement as quoted by Mint.
SKS Microfinance is backed by Sequoia Capital India and is run by its founder Vikram Akula as CEO.
The troubles for the company started brewing as it caught in a bind of farmer suicides due to indebtedness and the MFIs like SKS were accused of charging higher interest rates from poor farmers. MFIs charge borrowers anywhere from 24 per cent to 32 per cent interest on microloans which the borrowers pay back on a weekly basis.
The state government later tightened rules for MFIs which reduced the powers of the lenders to recover their loans from the borrowers. As a result, the loan recoveries in Andhra Pradesh have declined to as low as 10-15% for SKS and other MFIs, according to a report.
The stock of SKS had come under hammer because of these issues, and the last nail in the coffin was when on Friday broking house JPMorgan Chase and Co. cut the SKS share price target by 63 per cent to Rs 200 from Rs. 550 in a report that preceded the after-market earnings announcement. Shares of SKS fell 19.8%, to Rs 331.30 on the Bombay Stock Exchange.