SKS Micro cuts interest rate by 1%, says won't crimp margins

SKS Microfinance further slashed its interest rates by 1 per cent today, for all future disbursals, to 19.75 per cent with effect from December 7, saying it does not see any impact on margins as the move reflects declining cost for the company.
Announcing a 100 basis points (bps) reduction in lending rates, the only listed small lender claimed that no micro lender in the world offers sub-20 per cent interest rate to borrowers.
"Our margins will have no impact as we are passing on the benefit of lower cost of funds which we have gained from reduction in our cost of borrowing," SKS Microfinance president S Dilli Raj told PTI.

The firm had earlier slashed rate by 1.25 per cent in September.
The new rates will be effective from December 7 for new loans, he added and explained that considering the short-term tenure of MFI (Microfinance institutions) loans by the time the tedious process of repricing is done, the loan would have been paid back.
In a statement released earlier, the company said the reductions are consistent with its policy of passing on the cost advantages accruing from reduction in the cost of borrowing and economies of scale to its borrowers.

Its marginal cost of borrowing stood at 11.3 per cent in the September quarter as compared to 13.6 per cent in the financial year 2014, Raj said, referring to the regulatory stipulations which mandate that the spread should not be more than 10 percentage points.

Of the overall borrowing, around 17 per cent is from
commercial papers and bonds and 70 per cent from banks, SKS Microfinance managing director and chief executive M R Rao said.
Rao further said that the non-core or the fee income business contributes 9 per cent to the company's overall profit and 1.8 per cent of the loan portfolio.
In the quarter to September, SKS' gross loan portfolio stood at over Rs 5,434 crore.
The company registered a 5.3 per cent quarter-on-quarter drop in cost to income to 47 per cent in the second quarter as compared to 52.3 per cent in the first quarter.

As of September end, the company had a net worth of Rs 1,203 crore and a capital adequacy of 24.6 per cent. Cash and cash equivalents stood at Rs 834 crore.
The market lapped up the news and the SKS counter rallied over 7.2 per cent to close at Rs 454.65 on the BSE.