 "SKS deserves a new name: Dilli Raj")
SKS Microfinance has decided to change its name to Bharat Financial Inclusion Limited on top of a turnaround being in business and profitability in the last couple of years. SKS President Dilli Raj tells B Dasarath Reddy in an interview the new name signifies a paradigm shift in the company's business philosophy. Edited excerpts:
Why the new name?
A whole lot has changed around us and within SKS, after the Andhra Pradesh microfinance crisis. Outside, we have regulatory clarity on the microfinance sector. Within SKS, the business philosophy itself has undergone a paradigm shift. It is efficiency, not the higher charges, which drives our business today. Not just growth, but profitable growth is what we look for today. In the past, the scale and size was everything. Reducing the cost of delivery is as important as the scale and size of business for us today. What we have is SKS-2, therefore we thought the new name and a new corporate identity befits its transformation.
The company posted good numbers for the fourth quarter and also for the full year. What drives the company's profitability now?
Our profit growth is a function of volume and we face no margin compression even while we pass on the efficiency gains to customers. The assets under management (AUM) had gone up by 84 per cent. Today we charge 19.75 per cent interest on loans, which is unquestionably the lowest and three-four per cent lower than our peers in the country.
What is the outlook for this year?
We expect growth of 40-45 per cent and that will take us to Rs 11,000 crore of AUM from Rs 7,677 crore as at the end of March 2016. Our earnings should be in the range of about Rs 450 crore, compared with Rs 303 crore in FY16. Our incremental disbursals are growing at 15 per cent, way above the industry growth, which will help the company increase its market share from the present 12.82 per cent in total MFI (microfinance institution) loans.
How much funds would you be planning to raise for new business in the current year? Will securitisation of loan assets continue?
We require incremental debt of Rs 10,000 crore. The board has approved the proposal for the issuance of equity share capital of up to Rs 750 crore in the current year. Securitisation is a cost-efficient means which gives a 150-basis point gain. The company intends to keep 30-35 per cent of the loan portfolio under securitisation at the end of the year.
Will SKS pursue its ambition to become a full-fledged bank in future?
We are waiting for the proposed on-tap process for granting universal bank licences as announced recently by the Reserve Bank of India. We can re-evaluate our case after understanding the basic regulatory requirements that comes along with the on-tap process.
Naming it Bharat
Rules prescribed under the Companies Act, 2013, defines the naming guidelines for companies, whether they are private limited, one-person company or a limited company. While there are general conditions like the proposed name should not be identical to that of an existing company, the Act also created a separate group of words/names, including India and Bharat, which can be used in a name by a company only with Government of India's permission. These group of words and names also include Board, Commission, Authority etc.
SKS Microfinance President Dilli Raj said the company had acquired in-principle clearances from MCA, among other agencies, for the change of name as well as the usage of Bharat in the proposed name. Besides MCA's approval to change its name, SKS will need to seek approval from shareholders, Reserve Bank of India and stock exchanges.
Why the new name?
A whole lot has changed around us and within SKS, after the Andhra Pradesh microfinance crisis. Outside, we have regulatory clarity on the microfinance sector. Within SKS, the business philosophy itself has undergone a paradigm shift. It is efficiency, not the higher charges, which drives our business today. Not just growth, but profitable growth is what we look for today. In the past, the scale and size was everything. Reducing the cost of delivery is as important as the scale and size of business for us today. What we have is SKS-2, therefore we thought the new name and a new corporate identity befits its transformation.
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Bharat resonates very well with our background as we work in 100,000 villages. We also incorporated "Financial Inclusion" in the name because rural delivery is our core competence today. We have moved beyond microfinance and are bringing other things like mobile phones and solar lamps to the doorsteps of villagers.
The company posted good numbers for the fourth quarter and also for the full year. What drives the company's profitability now?
Our profit growth is a function of volume and we face no margin compression even while we pass on the efficiency gains to customers. The assets under management (AUM) had gone up by 84 per cent. Today we charge 19.75 per cent interest on loans, which is unquestionably the lowest and three-four per cent lower than our peers in the country.
What is the outlook for this year?
We expect growth of 40-45 per cent and that will take us to Rs 11,000 crore of AUM from Rs 7,677 crore as at the end of March 2016. Our earnings should be in the range of about Rs 450 crore, compared with Rs 303 crore in FY16. Our incremental disbursals are growing at 15 per cent, way above the industry growth, which will help the company increase its market share from the present 12.82 per cent in total MFI (microfinance institution) loans.
How much funds would you be planning to raise for new business in the current year? Will securitisation of loan assets continue?
We require incremental debt of Rs 10,000 crore. The board has approved the proposal for the issuance of equity share capital of up to Rs 750 crore in the current year. Securitisation is a cost-efficient means which gives a 150-basis point gain. The company intends to keep 30-35 per cent of the loan portfolio under securitisation at the end of the year.
Will SKS pursue its ambition to become a full-fledged bank in future?
We are waiting for the proposed on-tap process for granting universal bank licences as announced recently by the Reserve Bank of India. We can re-evaluate our case after understanding the basic regulatory requirements that comes along with the on-tap process.
Naming it Bharat
Rules prescribed under the Companies Act, 2013, defines the naming guidelines for companies, whether they are private limited, one-person company or a limited company. While there are general conditions like the proposed name should not be identical to that of an existing company, the Act also created a separate group of words/names, including India and Bharat, which can be used in a name by a company only with Government of India's permission. These group of words and names also include Board, Commission, Authority etc.
SKS Microfinance President Dilli Raj said the company had acquired in-principle clearances from MCA, among other agencies, for the change of name as well as the usage of Bharat in the proposed name. Besides MCA's approval to change its name, SKS will need to seek approval from shareholders, Reserve Bank of India and stock exchanges.