Hyderabad-based SKS Microfinance, the country’s largest and only listed micro-lending company, will raise Rs 900 crore through qualified institutional placements, according to a notice to the Bombay Stock Exchange. The company has received Board approval for its QIP.
“There is a huge growth opportunity outside Andhra Pradesh and there is also unmet demand in the market. We want to make the best of these growth opportunities,” said SKS’ chief financial officer Dilli Raj while commenting on the QIP issue.
The company has posted a net loss of Rs 218.7 crore for the first quarter ended June, 2011, as against a net profit of Rs 66.9 crore during the same period last fiscal.
On the backdrop of a poor performance, shares of SKS Microfinance slumped 10 per cent and hit an early low of Rs 470.05 on the NSE. On the BSE too, the stock plunged 9.86 per cent to touch an early low of Rs 470.25.
Last year, there was a severe crackdown on SKS Microfinance in Andhra Pradesh, leading to a drop in loan collections and financial losses. Later, the Reserve Bank of India had intervened and subsequently implemented an interest rate cap of 26 per cent for most microfinance loans. Interest rates in this space sometimes tend to peak to as high as 60 per cent.
In a bid to bring in complete transparency and avoid further animosity between the state laws and micro-lending companies, the central government has drafted the Micro Financial Sector (Development and Regulation) Bill, 2011, which proposes to make it mandatory for all microfinance institutions (MFIs) to be registered with the RBI while the central bank becomes the sector regulator. The bill is likely to be tabled in the Parliament’s monsoon session, beginning from Aug 1.
At present, the Andhra Pradesh government has a local law, which requires the state government’s approval to grant loan through microfinance. During the last quarter, SKS Microfinance received 75,000-80,000 loan applications, of which 1,500 were approved by the AP government. The new nationwide law, if implemented, will require MFI lenders to get certificates of registration from the RBI to start operations.
In order to avoid the ongoing crisis in Andhra Pradesh, the micro-lending company is also focusing on secured assets like gold loans. It will even float a step-down subsidiary this year to carry out other non-MFI lending. According to Reserve Bank of India (RBI) rules, microfinance loans should be at least 85 per cent of an MFI’s total assets.
At present, the company has five branches which deal with gold loans. However, the service centres will be ramped up to 100 by the end of this quarter and to 500 by the end of the fiscal. “At the end of the year, gold loan portfolio can be in the range of Rs 150 crore,” Raj had said earlier.
Incidentally, the company will be competing with the likes of Muthoot Finance and Manappuram General Finance & Leasing, besides several commercial banks who lend against gold, especially in southern India.
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