SKS Microfinance, the only listed micro lender in the country, had plunged into losses after a 2010 legislation by the Andhra Pradesh government regulated the activities of microfinance institutions (MFIs). In the quarter ended June, the company narrowed its loss to Rs 39 crore, against loss of Rs 219 crore in the year-ago period. Chief Financial Officer S Dilli Raj, in an interview with Prashanth Chintala, says the company would return to profitability in the third quarter this financial year. Edited excerpts:
When would the company return to the path of profitability?
We should be back in the black by the third quarter. In the second quarter, we may have one-time, one-off items to be dealt with.
What are the credit disbursal targets?
At the end of 2011-12, our non-Andhra Pradesh portfolio stood at about Rs 1,320 crore. This year, our target is Rs 2,500-2,600 crore. Credit disbursal would primarily be carried out in 17 states, excluding Andhra Pradesh.
What is your targeted growth?
With a portfolio of Rs 2,600 crore, we would go for stable growth of 30-35 per cent year-on-year.
Would the revised regulatory norms for MFIs issued by RBI this month help SKS?
These would help, especially in three to four areas. First, there is relief on provisioning norms. RBI has said for about five years we could taper whatever it provides for capital adequacy. The benefit for a unit like SKS is we might not have to raise more capital in the next five years. So, there need not be any equity dilution during this period.
Second, the interest rate and margin caps were earlier designed such that interest rate risks had to be borne by MFIs. In simple terms, there was a 26 per cent cap on interest to be charged on customers, and 14 per cent on the cost of borrowing by MFIs. Beyond the 14 per cent interest on borrowing, MFIs had to bear the risk. Now, MFIs are insulated from interest rate risks.
Third, by removing the interest cap on individual loans, RBI has given us the operational flexibility to price individual credits. So, you could have differential pricing for different states, different ticket-sizes and different credit risk perceptions. I am not saying we are going to do that, but today, we have this operational flexibility.
Does it mean you are not going to raise more money?
We will raise incremental debt.
How much would you raise?
We need to raise Rs 2,500 crore of incremental debt. With Rs 1,000 crore raised in the quarter ended March, it would result in a total of Rs 3,500 crore.
How many branches have you shut down, and how many employees have you removed as part of the branch consolidation and headcount rationalization process?
When the crisis began in Andhra Pradesh, we had 2,400 branches. As of now, we have reduced this to 1,350. Also, the headcount has been reduced from 27,000 13,000. With this, both branch consolidation and headcount rationalisation have been completed.
How much have you saved through this exercise?
There has been a drastic reduction---almost 50 per cent in the number of branches and headcount. The reduction in operating costs is already showing in our profit and loss. The total operating cost has come down from about Rs 120 crore a quarter to Rs 76 crore. We are envisaging further reduction, through which it can be cut to Rs 70 crore.
How many branches have you shut down in Andhra Pradesh?
We had about 400 branches in Andhra Pradesh before the crisis began. Right now, this has been reduced to 100.
Is the state excluded from your current plans?
As far as Andhra Pradesh is concerned, we really don’t have future financial receivables. So, we have substantially reduced the branch network and headcount in the state. The real issue here is there is restraint on our incremental lending. Unless that is removed by the state government, through legal intervention (SKS had approached the court against the state government) or through the passage of the MFI Bill, there is nothing we can do. As of now, for every application, we need the approval of the state government, and that is not forthcoming.
