Investors Assume the Worst for SKS Microfinance
Monday, May 9, 2011
That SKS Microfinance Ltd will have to write off part of its Andhra Pradesh (AP) loan book is inescapable. If there is any difference of opinion among brokerages, it is just in the matter of degree. Some assume 40% of its AP advances will have to be forgone, while others paint a bleaker picture at 90%.
The fourth quarter (Q4) results of the firm make for grim reading, with falling net interest income, spreads and return on assets. Not only did SKS lose Rs. 70 crore, its collection rates declined to 10.5% in AP, compared with at least 90% in other states. This was worse than the 43.5% collection in the December quarter.
The state, which accounts for one-third of the Rs. 4,111 crore gross loan book of SKS at the end of March, passed an Act in October to stop microlenders to collect dues on a weekly basis and seek state approval for fresh advances.
SKS seems to recognize that the AP portfolio is in deeper trouble than it once thought. In Q4, it reversed Rs. 81 crore of interest income-about one-third of the overall income-on its AP portfolio.