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Business News/ Market / Mark-to-market/  SKS Microfinance results show it’s back in a sweet spot
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SKS Microfinance results show it’s back in a sweet spot

Loans outstanding, excluding those in Andhra Pradesh, jumped 50% from a year ago to `3,043 crore, in what is traditionally seen as a lean quarter

The return on average gross loan portfolio for SKS Microfinance increased to 7.3%, an improvement of 90 basis points over the June quarter. Photo: BloombergPremium
The return on average gross loan portfolio for SKS Microfinance increased to 7.3%, an improvement of 90 basis points over the June quarter. Photo: Bloomberg

SKS Microfinance Ltd’s September quarter results show it is in a sweet spot. With its Andhra Pradesh portfolio written off and regulatory uncertainty over in the microfinance space, the firm can focus on growth in an under-penetrated market.

A successful 400 crore capital-raising earlier this fiscal year means that operating leverage will boost its profitability as its loan book expands.

It has been successful in doing precisely that in the September quarter as well. SKS’s loans outstanding, excluding those in Andhra Pradesh, jumped 50% from a year ago to 3,043 crore, in what is traditionally seen as a lean quarter. Even sequentially, loan book growth was 37%. Disbursements were strong partly because the average ticket size of the loans also increased 10% from a year ago.

The return on its average gross loan portfolio increased to 7.3%, an improvement of 90 basis points (bps) over the June quarter. That was largely driven by an improvement in gross yields to 25.9%, up 3.8 percentage points over the June quarter. One basis point is one-hundredth of a percentage point.

SKS’s gross costs on interest bearing liabilities increased to 14% in the September quarter, up 1.2 percentage points over the April-to-June number.

That said, its cost of funding is likely to come down in the coming quarters. For one, general interest rates in the economy could come down over the course of the next year. Secondly, SKS’s credit rating for bank borrowings was upgraded in June. The fact that the firm is confident about funding costs going down can also be seen from the fact that it cut lending rates by 1 percentage point from the beginning of the current quarter. Ultimately, a larger portfolio will help it spread out costs even more and drive operational efficiency.

The opportunity for growth is enormous—only one out of every seven rural Indian household is served by organized microlenders. SKS is well prepared with a capital adequacy of 33.2%.

The only risks to its outlook are an Andhra Pradesh-like political turbulence and the drying up of liquidity. Both seem far away for now.

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Published: 26 Oct 2014, 07:32 PM IST
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