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Business News/ Money / Personal-finance/  Andhra crackdown squeezes microlenders; SKS skids
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Andhra crackdown squeezes microlenders; SKS skids

Andhra crackdown squeezes microlenders; SKS skids

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Mumbai: The crackdown by Andhra Pradesh government on business practices by lenders to the poor threatens to squeeze revenue, profits and asset quality, the country’s only listed microfinance firm said, sending its shares sharply lower.

India’s once-thriving microfinance sector has been reeling since Andhra Pradesh, the industry’s largest market, clamped down last month on industry collection practices that were reportedly blamed for a spate of suicides by borrowers.

Critics have also complained that microlenders had failed to pass on the benefits of profits to borrowers in the form of lower interest rates. Microfinance lenders in India make loans that average roughly $150, charging interest that can top 30%.

“Collections are low (in Andhra Pradesh) but bankers are still lending us funds and things are improving. So we are shocked at the fact that the stock has dropped so much," SKS Microfinance spokesman Atul Takle told Reuters.

He was speaking after the company’s shares tumbled by about 20% on Thursday morning after the company issued a statement saying that collections in Andhra Pradesh were lower than normal since the ordinance took effect.

The new Andhra Pradesh rules require microfinance companies to collect only once a month, whereas most such lenders in India typically collect on a weekly basis.

“The collections are lower than normal on account of transition from weekly to monthly collection cycle and the related change in MIS (management information systems), passbook, and member communication," the SKS statement said.

“As said in our earlier notification, if this is not redressed satisfactorily, the resultant reduction in collections in AP (Andhra Pradesh) is likely to have a material impact on the company’s revenues, profitability and asset quality of the AP portfolio," it said in a statement to the stock exchanges.

Takle said collections in other states were normal.

The company said it has credit lines totalling Rs2500 crore ($549 million), and seven banks have disbursed Rs292 crore to it since the state ordinance took effect. SKS said it disbursed Rs1,048 crore in October.

Fortunes for India’s microfinance industry have turned dramatically since SKS, which is backed by George Soros, raised $358 million in a heavily subscribed initial public offering in August. Other lenders had also been looking to go public.

Union finance minister Pranab Mukherjee last month said he expected the industry to adopt a code of conduct on interest rates and recovery practices.

Shares in SKS traded on Thursday morning at Rs642, about 35% below their Rs985 IPO price, and 57% below their 28 September peak.

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Published: 18 Nov 2010, 03:41 PM IST
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