SKS Micro ties up with 3 banks to manage extra cash

SKS Microfinance has tied up with three private banks for managing excess cash at its branches. It is also looking at more collaborations with public sector banks in a bid to make operational savings.

The rural lender will link its branches with those of Axis Bank, ICICI Bank and HDFC Bank and use this network to transfer money between its main office and branches.

“As of date there are 1,700 SKS Microfinance branches, which have a surplus cash of Rs 5 lakh per day. The daily average would be Rs 28.75 crore, which we would pull to our head office each day through these banks’ branches,” S Dilli Raj, chief financial officer of SKS Microfinance, told DNA Money.

“We are trying to reduce the disproportionately high cash float in the system, thereby reducing the risk (of thefts etc.) involved,” he said.  “There would also be operational savings,” Dilli Raj said. The lender expects to save Rs 3.5 crore through these collaborations.

Initially, this was the money SKS Microfinance had to give away as interest costs on the funds it procured to give loans to rural poor.  The company will initially connect 575 of its branches to 300 Axis Bank branches, 175 ICICI Bank branches and 100 HDFC Bank branches. SKS is looking for a similar collaboration with public sector banks.

Earlier, SKS had its field officers carry the surplus money to a bank branch, from where it was transferred to the microfinance company’s head-office via a demand draft.

“These tie-ups could be a building block to forthcoming regulatory moves,” Dilli Raj said.
“About 95% of our rural customers wouldn’t have a bank account. To get members to open a bank account, if NBFCs are allowed to act as business correspondents in the future, then we could do so,” he added.