Photo: Bloomberg.

Photo: Bloomberg.

SKS Microfinance posts 385 cr loss in September quarter

SKS Microfinance posts 385 cr loss in September quarter

Mumbai: SKS Microfinance Ltd, India’s largest and only listed microlender, said its losses widened in the second quarter from the preceding three months as repayment rates in Andhra Pradesh, its biggest market, plunged after a local law restricted lending and recovery.

Photo: Bloomberg.

The firm’s loan book has shrunk from around 5,000 crore in September last year to 3,450 crore in June. Loans and advances further fell to 2,532.4 crore in the three months ended 30 September.

SKS officials declined to comment.

“It’s just the beginning. We are going to see more provisioning and write-offs in the coming quarters," said Shadab Rizvi, a Mumbai-based microfinance analyst at Darashaw and Co. “The overall loan book has shrunk drastically, and Andhra Pradesh portfolio now accounts more than half of that portfolio, which is not a good sign for the company going forward."

India’s 20,000 crore microfinance industry plunged into a crisis in October 2010 when Andhra Pradesh, which accounts for at least a quarter of the industry, passed a controversial law to rein in microlenders after some suicides were reported due to coercive recovery practices.

The lenders saw collection rates drop to as low as 5-10% in the state. Most banks have also stopped giving loans to microfinance companies, citing the uncertainty in the sector. The situation in Andhra Pradesh remains unchanged.

The SKS scrip has lost around 80% from the issue price of 985 a share in August 2010.

Last week, its board had approved a plan to raise 900 crore through qualified institutional placements. It is also raising authorized share capital from 95 crore to 135 crore, the board said.

Analysts said the microlending industry is likely to face tough times in the months ahead until recovery improves in the southern state.

“Difficult times are likely to continue for microlenders in Andhra for some more time until some improvement happens on the recovery front," said Hatim Broachwala, an analyst at Fortune Financials. “Only when the recovery improves, they will have better chances of getting access to bank finance again."

SKS is one of the two major microlenders in Andhra Pradesh that opted out of corporate debt restructuring (CDR) when banks offered such firms the option to restructure their debt. The other was Vijay Mahajan-promoted Bhartiya Samruddhi Finance Ltd (BSFL).

Trident Microfin Pvt. Ltd, Share Microfin Ltd, Asmitha Microfin Ltd, Spandana Sphoorty Financial Ltd and Future Financial Services Ltd opted for the CDR scheme.

Viswanath Pilla in Hyderabad contributed to this report.

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