Andhra Pradesh norms put pressure on SKS Microfinance

Microfinance major SKS Microfinance continues to remain in troubled waters with the market situation in Andhra Pradesh  showing no signs of improvement. The company’s activities in terms of lending or recovering the money that has already been lent have not moved ahead of where they were in Q3.

“The situation continues to be exactly like it was in the third quarter. We are still not going to the market. So, there are no recoveries. The process of seeking no objection certificates from the government for giving out loans too has not picked up the pace, halting the loaning process,” a SKS spokesperson told DNA.

With the government putting in place a set of a stringent norms for recovery and also advancing fresh loans, the companies had to go slow only to hit a dead end.

The Andhra Pradesh government had also enacted a law to regulate the the microfinance institutions (MFIs) following reports of a spate of suicides allegedly caused due to the coercive recovery practices adopted by the MFIs.

“Nothing has changed in Andhra Pradesh. For many of us, the business is on course due to the activities in other states. The business in AP alone is not worth talking about,” he said.

Though pinning hopes on the RBI-appointed Malegam Committee’s recommendations for revival of the activity, the industry in Andhra Pradesh is currently anticipating a major consolidation in the sector with several MFIs evaluating the option of shutting down their operations.

For SKS, the fourth quarter is said to be no different from what it was in Q3. It recorded a 38.41% drop in the profit for the quarter ended December 2010.

The company’s revenues, however, were up 44% during the quarter at `384.68 crore as against Rs266.22 crore in the corresponding period of the previous year. The company’s profit during Q3 dropped to Rs34.15 crore from `55.45 crore in the corresponding period.

The margins’ pressure too continue to haunt the company with its voluntary cut down in the interest rate to 24.55% from over 26%.
“There is a definite pressure on margins, particularly compared to Q3. The fourth quarter is the full three-month period with the reduced interest rates. One has to wait to see the improvement in volume to offset the margin loss,” a source, tracking the company, said.