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SKS top executives take steep salary cuts

SKS top executives take steep salary cuts

Mumbai: Seventeen top executives of SKS Microfinance Ltd, including managing director and chief executive officer M.R. Rao and chief financial officer S. Dilli Raj, have taken pay cuts as the firm struggles to pare losses.

“All core management team members volunteered to take pay cuts in the region of 16-50%," a company spokesperson said by email. “This has been implemented with effect from 1 May, 2012."

In a reflection of the battering India’s microfinance sector has taken, SKS’s losses touched 330 crore in the March quarter, and its loan book shrunk considerably. The company also terminated the services of some 1,200 employees in Andhra Pradesh and shut down 78 branches, after October 2010. Its headcount now stands at less than 15,000, down from 16,200 in March.

SKS said the pay cut is a “symbolic gesture" and not due to its “deteriorating business conditions". Last year, many microfinance institutions (MFIs) had faced criticism for offering exorbitant executive pay packages.

“It is a good development that SKS is aligning their compensation packages in sync with the business and sector. The earnings of SKS officials were anyway higher compared with that of the industry," said Samit Ghosh, founder and managing director of Ujjivan Financial Services Pvt. Ltd.

With the reduction in pay, the maximum pay package offered by SKS now stands at 50 lakh.

“Though this step has come a bit late, it is a welcome step considering that the company is aligning itself with the reality of the microfinance sector," said Mathew Titus, executive director at microfinance industry body Sa-Dhan.

Founded by Vikram Akula as a non-profit organization in 1997 and later converted into a non-banking financial company in 2005, SKS was listed in August 2010. Since then, the company was mired in controversies, which began when the firm, in October 2010, sacked chief executive Suresh Gurumani without citing any reason.

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Top executives at cash-strapped firm SKS microfinance have taken drastic pay cuts. Mint’s Dinesh Unnikrishnan says the move is being seen as an effort to reflect the wider realities of the micro-lending sector

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Since its listing, SKS shares have lost at least 95.65% of its value from a record high of 1,490.7 on 28 September, 2010. On Wednesday, the company’s shares closed at 64.85 on BSE, up 3.51%, while the benchmark Sensex rose 0.22% to 16,896.63 points.

SKS, the only listed microlender in the country, was also the largest till a crisis hit the sector after Andhra Pradesh—the largest market for MFIs and SKS—enacted a law to rein in alleged coercive recovery practices of MFIs that lend small loans to borrowers at 24-36%.

Certain provisions in the law, such as banning weekly collections and doing doorstep business, pushed down the collection rates of microlenders to 5-10% in the southern state. It forced them to stop issuing fresh loans to borrowers. Banks, too, stopped lending to MFIs due to increased risk-aversion.

SKS was one of the worst-hit with its performing loan book shrinking to nearly one-fifth to 1,320 crore from around 5,000 crore in October 2010, before the crisis hit the sector. The lender’s Andhra Pradesh loan book dropped from around 1,491 crore to 236 crore, while that outside the state shrunk to 1,320 crore from 3,500 crore. Networth fell to 435 crore in March 2012 from 1,781 crore a year ago.

SKS, however, is optimistic of a revival in its business with the centre and the Reserve Bank of India (RBI) formulating new regulations for the sector. In December, RBI capped the interest rates MFIs can charge to borrowers at 26% and their margin at 12%.

In the face of deteriorating business in Andhra Pradesh, SKS also recently decided to shift its headquarters to Mumbai from Hyderabad.

On its part, the government is in the process of enacting a national regulation for MFIs—Microfinance Institutions (Development and Regulation) Bill, 2012—that will supersede all state regulations and will give sole power to the central bank to regulate the industry.

SKS is attempting to revive its operations by diversifying operations to other business segments and focusing on states other than Andhra Pradesh. Efforts include offering loans against gold and distributing insurance products.

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