SKS to revamp business model, raise Rs 4,000 cr

SKS Microfinance, whose shares have slumped 42 per cent in the last three weeks on losses and low recovery in Andhra Pradesh, its largest market, plans to revamp its business model.

India’s biggest and only listed microfinance company today said it would raise Rs 4,000-5,000 crore in 2011-12. It will focus on gold loans and enter other non-core streams, even if it it means setting up a subsidiary.

“In the light of our experience in Andhra, we need to reinvent our company and business,” said SKS Chairman Vikram Akula.

Terming the experience in Andhra Pradesh — where a government crackdown on microfinance institutions has hit new business and loan recovery — as a one-off case, Akula said the plan for 2011-12 included giving more gold loans, lending to kirana stores and providing loans for buying mobile phones. The company has already tied up with Metro Cash & Carry and Nokia for the latter two initiatives.

Microfinance loans account for 73 per cent of SKS’ total portfolio.

A part of the funds raised would be used to expand the network. For example, Rs 150 crore would be invested to transform 400 branches into gold loan branches. SKS has just five gold loan branches at present.

SKS plans to increase the number of kirana stores it finances to 20,000 from 3,800 and sell one million mobile phones by the end of the financial year. It would also offer larger loans to reduce operational costs.

Akula said things would change if the Andhra Pradesh government allowed the company to lend freely to low-income families. If the company was able to disburse fresh loans, the recovery rate would rise, he said.

In the last quarter, SKS wrote off Rs 38 crore in the state, where the recovery rate fell to 10.5 per cent.

“We are not asking the government to revoke the Microfinance Act. We want it to relax the norm that asks MFIs to seek prior permission for extending each loan,” he said.

The company’s stock hit a new low of Rs 262 at the Bombay Stock Exchange in early trade today, but rebounded by close to 10 per cent to touch the upper circuit.