Since India’s SKS Microfinance experienced average losses per quarter of INR 2 billion (USD 37.8 million) during the year ending March 2012, the Indian microlender has been able to borrow approximately INR 10 billion (USD 189 million) from banks. This comes after the Reserve Bank of India (RBI), India’s central banking authority, reduced uncertainty in the sector by establishing a new regulatory framework for MFIs in December 2011 that included capping microloan interest rates at 26 percent. In Indian states other than Andhra Pradesh, the company’s loan portfolio grew at a rate of 21 percent compared with the previous quarter, and the company reportedly believes it will turn a profit in the quarter ending in December. SKS wrote off approximately INR 11.3 billion (USD 213 million) in bad microloans since the 2010 implementation of the Andhra Pradesh Microfinance Institutions Act, which imposed interest rate caps and other restrictions on the operation of microlenders in the state. As a result, SKS holds a deferred tax asset of INR 4.72 billion (USD 89.3 million) which can be set against profits in the future.
In related news, The Royal Bank of Scotland (RBS), a subsidiary of the UK-based Royal Bank of Scotland Group, reportedly has purchased 500 million shares of SKS for INR 587 million (USD 11.2 million) and Morgan Stanley Asia, a branch of the US-based financial services firm, acquired 450 million shares in the company for INR 540 million (USD 10.3 million). Both companies purchased their stakes from Deutsche Securities Mauritius, a subsidiary of Deutsche Asia Pacific Holdings, which has sold all of its shares in SKS.
As of December 31, 2011, SKS reports a gross loan portfolio of USD 328 million, approximately 4.3 million borrowers, return on assets (ROA) of -49.85 percent and return on equity (ROE) of -125.51 percent.
By Charlotte Newman, Research Associate
About SKS Microfinance
SKS Microfinance is a for-profit microfinance institution (MFI) that was launched in 1998. SKS converted into a public limited company in May 2009 and launched an initial public offering on July 28, 2010. It since diversified into offering gold loans, funeral assistance and loans to small stores. Its equity investors include Quantum Hedge Fund, Sequoia Capital, Vinod Khosla, Small Industries Development Bank of India, Bajaj Allianz, Yatish Trading, Kismet Capital, Sandstone Capital, Silicon Valley Bank and Unitus. SKS currently trades on the Bombay Stock Exchange. As of December 31, 2011, SKS reports total assets of USD 320 million, a gross loan portfolio of USD 328 million, approximately 4.3 million borrowers, return on assets (ROA) of -49.85 percent and return on equity (ROE) of -125.51 percent.
About Reserve Bank of India
Established in 1935, the Reserve Bank of India (RBI) undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While all microfinance institutions (MFIs) and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5 percent stake in the outfit, RBI owns a one-percent stake in NABARD as of 2011.
Sources and Additional Resources:
Economic Times: “With an Equity Infusion, the Worst Appears to be Over for SKS Microfinance,” http://articles.economictimes.indiatimes.com/2012-08-27/news/33425265_1_sks-microfinance-microfinance-institutions-loan-portfolio
The Indian Express: “Morgan Stanley Buys 45L SKS Micro Stock,” http://www.indianexpress.com/news/morgan-stanley-buys-45l-sks-micro-stock/1008316/
VCCircle: “RBS Buys 6.8% of SKS Microfinance for $10.8M,” http://www.vccircle.com/content/rbs-buys-68-sks-microfinance-108m
MicroCapital.org story, May 1, 2012, “MICROCAPITAL BRIEF: Microfinance Growth Slows in Andhra Pradesh, Quickens in Other Indian States,” https://www.microcapital.org/microcapital-brief-microfinance-growth-slows-in-andhra-pradesh-quickens-in-other-indian-states/
MicroCapital.org story, March 7, 2012, “MICROCAPITAL BRIEF: SKS Microfinance Borrows $20m from Small Industries Development Bank of India (SIDBI), Focuses Efforts Outside Andhra Pradesh,” https://www.microcapital.org/microcapital-brief-sks-microfinance-borrows-20m-from-small-industries-development-bank-of-india-sidbi-focuses-efforts-outside-andhra-pradesh/
MicroCapital.org story, October 11, 2011, “MICROCAPITAL BRIEF: Reserve Bank of India Requires Microfinance Institutions to Hold Loans for 9 Months Before Securitizing,” https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-requires-microfinance-institutions-to-hold-loans-for-9-months-before-securitizing/
MicroCapital Universe Profile: SKS Microfinance
http://microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS+Microfinance
MicroCapital Universe Profile: Morgan Stanley
http://microcapital.org/microfinanceuniverse/tiki-index.php?page=Morgan+Stanley
MicroCapital Universe Profile: Reserve Bank of India
http://microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29
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