SKS Microfinance is the largest MFI in India in terms of total value of loans out- standing, number of borrowers, that is members, and number of branches, ac- cording to the October 2009 CRISIL report titled India Top 50 Microfinance In- stitutions, or the CRISIL Report. A non-deposit taking non-banking finance company, SKS Microfinance is engaged in providing microfinance services to individuals from poor segments of rural India. As of March 31, 2010, it had outstanding loans of Rs 26,946.70 million from more than 48 banks and other financial institutions.
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SKS Microfinance plunged 8% to Rs 192, after reporting a net loss of Rs 384 crore for the second quarter ended September 30, 2011, on account of lower income and higher provisioning. India’s only listed microfinance institution (MFI) had made a profit of Rs 80.55 crore in the July-September quarter of the previous fiscal. The total income of the company also declined one-third to Rs 123 crore during the quarter from Rs 367 crore in the same period a year ago. In intraday trades, the stock had slipped to Rs 188, its lowest since listing in August 2010Analysis
The promise at the bottom of the pyramid is now beginning to haunt SKS Microfinance. The firm posted a net loss of Rs 380 crore in the second quarter ended September, due to a loan write-off of Rs 350 crore. However, the problems faced by the microfinance company are not restricted to its Andhra Pradesh (AP) portfolio alone. The company’s expenses are up and its loan book is shrinking. The quarterly run-rate of net interest income and other income is Rs 80 crore, while expenses are Rs 100 crore. Clearly, income has to go up in the coming quarters or expenses have to come down, analysts say.
Sequentially, disbursements declined to Rs 800 crore from Rs 900 crore in the first quarter of FY12. Analysts say that the company’s loan book at the end of September stood at Rs 2,650 crore (Rs 3000 crore before write-offs), compared to Rs 3,450 crore in June 2011 and Rs 4,110 crore in March 2011. Analysts expect the loan book to grow Rs 600- 700 crore over the next two quarters, if bank lending to the sector resumes.
In the first quarter, its entire AP loan portfolio of Rs 1,100 crore was declared as non-performing loans. Subsequently, SKS made a provision of Rs 110 crore (at 10%). In this quarter, SKS has written off Rs 350 crore of its AP portfolio, thereby bringing down the AP loan book to Rs 800 crore. According to Kotak Inst. Equities Research, SKS has unrecognised net deferred tax assets (on account of provisions) of Rs 220 crore - this can be used against profits in future. Thus, net of this buffer, the net AP exposure is about Rs 600 crore.
The management has conveyed to analysts that private sector banks have shown interest in not only lending to the company but in buying out loan pools. However, the decision of bankers will largely be driven by the company’s fund raising ability. In a report analysing the company, Nischint Chawathe of Kotak Inst. Equities says: “SKS has proposed to raise equity capital of up to Rs 900 crore, which if executed will considerably boost the confidence of bankers. The traction from bank loans will clearly provide significant (positive or negative) sensitivity to our estimates.”
Update
Pursuant to approval of Government, Ministry of Corporate Affairs, Registrar of Companies, the name of the company has been changed from 'SKS Microfinance Limited' to 'Bharat Financial Inclusion Limited' with effect from today (June 13, 2016)," it said in a regulatory filing.
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