INDIA'S SKS MICROFINANCE TANKS 20 PCT ON EARNINGS CONCERNS

SKS Microfinance (BSE:533228) tanked by 20 per cent on the BSE on Thursday after it said future profitability could be hit by the Andhra Pradesh ordinance reining in microfinance institutions' activities, which has already hurt collections in the month of November.

"The collections (in AP) are lower than normal... the resultant reduction in collections is likely to have a material impact on the company's revenues, profitability and asset quality of the AP portfolio," SKS said in a filing to the Bombay Stock Exchange.

Andhra Pradesh currently accounts for 27 per cent of the company's total portfolio. At the end of September, the company had a gross loan portfolio of Rs 5,434 crore (US$1.2 billion).

SKS Microfinance shares tumbled by 20 per cent to hit the lower limit of Rs 639.45 on the BSE on Thursday.

The scrip is trading 50 per cent down from a high of Rs 1,490 achieved in September. It is also 20 per cent below the offer price of Rs 985 for issuance of shares under the microfinance institution's recent IPO.

Last month, the company had reduced interest rates in AP to 24.55 per cent from over 26 per cent after the state government 15 promulgated an ordinance to control MFIs on October.

SKS had said it would eventually reduce interest rates across the country to 24 per cent, but did not specify a timeframe.

As per the ordinance, the MFIs should increase the loan repayment period for self help groups (SHG) to 30 days, as against the earlier practice of 15 days. The rule applies also for loans taken by existing borrowers.

"As one month has passed since October 15, we commenced collection in those centres where we did not collect in the last 30 days," SKS said, adding that the collections were lower than normal.

Earlier this month, SKS had said it may approach the AP High Court if this provision is not changed.

"In the event the issue of repayment periodicity is not satisfactorily resolved, the company may be constrained to challenge the same in the Andhra Pradesh HC, if it is so advised," the company had said.

MFIs usually lend money to borrowers through women's groups in remote areas. They charge interest rates as high as 34 per cent, mostly due to the cost associated with administration of loans in remote areas.

The AP ordinance was issued after a spate of suicides in the state, which many alleged was due to high interest rates and the coercive recovery methods adopted by microfinance companies.

The ordinance now makes it mandatory for all MFIs to register with the district Registering Authority.

Meanwhile, the 30-share benchmark Sensex was down by 135.24 points from its previous close in early trade on the BSE on Thursday.