Mumbai: SKS Microfinance has not seen any banks withdrawing support to the firm despite a clamp down by a state on industry collection practices, its chairman told a local television channel, helping its shares rise as much as 10%.

The country’s only listed microfinance company, which is backed by George Soros and raised $358 million in a heavily subscribed initial public offering in August, continues to have a strong balance sheet, Vikram Akula told CNBC TV18.

“While the ordinance has had an effect on some MFIs ... in our case we haven’t seen a significant impact as of yet," he said, referring to microfinance institutions. “We have very good capitalisation and a very strong balance sheet."

Shares of SKS fell as much as 20% on Thursday after it said tightened regulations in Andhra Pradesh threatened to squeeze profits and revenue.

The stock recovered some of those losses on Friday and was trading 7.9% higher at Rs691.25 in a weak Mumbai market at 12:38 p.m. Over 1.5 million shares changed hands on the Bombay Stock Exchange, nearly five times their average volume over 30 days.

Brokerage Kotak Securities upgraded its rating on the stock to ‘buy’ after the recent beating, but lowered its earnings forecasts for the company for the next three financial years by more than 20% each year.

“The current operating environment makes it difficult to predict near-term business performance but regulatory pressures will likely constrain SKS’s growth traction in the near term even as long-term prospects remain strong," Kotak said in a 18 November report.

Tighter Rules

India’s once-thriving microfinance sector has been reeling since Andhra Pradesh, the industry’s largest market, last month said firms can collect loans only once a month, whereas most such lenders typically collect on a weekly basis.

Microfinance companies make loans that can be as low as Rs2,000 ($44) to poor customers at interest rates that can top 30%. The borrowers use the money for various purposes ranging from buying livestock to opening a village tea stall.

Finance minister Pranab Mukherjee said last month that he expects the industry to develop a code of conduct on interest rates and recovery practices, while the central bank last month set up a panel to study issues surrounding the sector.

“All regulation, especially good regulation, helps the market leader because what it allows you to do is to weed out a lot of rogue players who have come into the industry today without fully understanding the right way and the right approach," SKS’ Akula said.

“As a well-capitalised, well-funded market leader, we are confident we will be able to weather the storm."

Sufficient Cash

Shares in leading banks including State Bank of India, ICICI Bank and HDFC Bank have been under pressure for the last two days on concerns of pile up of bad loans because of their exposure to microfinance firms.

ICICI was trading down 0.7% at Rs1,157 on Friday noon, extending its loss of as much as 5% a day earlier. SBI was trading down 0.5%, while HDFC Bank fell 1.5%.

Citigroup said Indian banks’ exposure to the sector ranged from 0.1% to 3.6% of their loan books. ICICI’s lending is at Rs2300 crore, or 1.2% of its loan book. SBI and HDFC Bank have lent 0.1% and 0.8%, respectively.

SKS chief financial officer Dilli Raj told the TV channel the company held “sufficient cash" to meet loan disbursements for the next six months, and that none of its banks had withdrawn support from the microfinance institution.

“We hold sufficient liquidity," he said, adding banks have lent SKS Rs367 crore ($81 million) in the last 15 days.

The company expects its loan book to grow by 74% to Rs7,500 crore by the end of this fiscal year in March from about Rs4,300 crore last year, Raj said.