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Money May 11, 2012

SKS is back in the game after it gets out of Andhra

SKS Microfinance has surged 15.2 percent to Rs 102.15 after the company announced yesterday that it will reduce its headcount and shut down some of its Andhra Pradesh branches.

Since, the government has cleared the Microfinance Bill and made the Reserve Bank of India as the regulator for all micro finance companies (MFIs), the impact of the decision will be seen on the microfinance stocks.

SKS Microfinance Ltd, the only listed microfinance company in India, said on Thursday it planned to reduce its headcount by a third and shut some branches in Andhra Pradesh amid mounting losses.

SKS Microfinance CFO S Dilli Raj told CNBC-TV18 the company has diversified operations in 18 other states. In the case of Andhra Pradesh, he said they did not plan to exit AP. "Ground level operations in Andhra Pradesh will continue."

He further said the company would reduce headcount by 1,200 and shut down 78 branches. However, he also said they would bring staff back into the fold as situation improves.

SKS' business in Andhra Pradesh, which was a microfinance hub earlier, has been hit after the state government imposed a set of restrictive laws in October 2010 curtailing microfinance activity.

The move scared away many sector investors and prompted some small to mid-sized lenders to the poor to shut shop.

Reuters

SKS, which employs 3,400 people in Andhra Pradesh, will cut 1,200 jobs, the company said in a statement, adding that it has decided to close 78 of the 180 branches it operates in the state.

The lender said it was not planning to close its business in Andhra Pradesh, where its loan portfolio shrunk to 2.36 billion rupees in the March quarter from 13.11 billion rupees a year ago as it was forced to write off some credit.

"The microfinance business in Andhra Pradesh has come to a standstill," MR Rao, chief executive officer of SKS, said in the statement, adding that its business in the state would remain "cash neutral" due to the prevailing market conditions.

SKS' loss in the January-March quarter more than quadrupled to 3.3 billion rupees, reflecting the sliding fortunes of the country's beleaguered microfinance sector. It has been posting losses for the last six quarters.

The company, however, said on Thursday it was not facing any liquidity or solvency issues and that it had healthy cash and bank balances.

SKS has been beset with slowing business and a boardroom struggle that has sent its stock plummeting after a successful initial public offering in 2010 in which it raised $358 million. It saw the exit of its founder Vikram Akula in November 2011.

With inputs from Reuters

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