SKS to reduce interest rates to 24%

SKS Microfinance, the largest and the only listed microfinance institution (MFI) in the country, on Tuesday said it was planning to further reduce interest rates to 24 per cent in Andhra Pradesh and 18 other states.

Last month, it had reduced rates from 26.69 per cent to 24.55 per cent in Andhra Pradesh, following the promulgation of the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Ordinance 2010.

“The ordinance and its implementation will have material impact on the company’s operations in Andhra Pradesh,” SKS told the stock exchanges on Tuesday.

The state accounts for 27 per cent (Rs 1,417 crore) of the company’s portfolio of Rs 5,600 crore. SKS, however, said it was not in a position to quantify the potential financial impact.

The company said interest reduction would have an impact on interest income and profitability not only in Andhra Pradesh but also in other states. Its stock price on Tuesday fell by Rs 39.05 (3.91 per cent) to Rs 960.90, as against yesterday’s close of Rs 999.95.

SKS said its field operations in the state had been disrupted and it was unable to hold village centre meetings in 54 per cent of the centres for the week ended October 29 “due to lack of legal and political support.”

For the week ended November 5, the company decided not to hold any centre meetings, “both due to impediments in conducting such meetings and because of two holidays during the week.”

According to an SKS spokesperson, the company has 555 branches and 71,000 village centres in the state. Excluding Andhra Pradesh, the company has 2,09,410 centres across the country.

SKS said it was in talks with the state government and key regulators like the Reserve Bank of India and the Ministry of Finance for “rectifying the onerous aspects of the ordinance and its implementation.”

Apart from the ordinance, the company said the AP rural development principal secretary had issued a notification on November 2 stating that the periodicity of repayment by any self-help group member should not be less than a month, even under loan agreements.

“Effectively, the change introduced by way of the said notification is applicable with retrospective effect.” In the event the issue of repayment periodicity was not satisfactorily resolved, SKS said it would be constrained to challenge it in the high court.