SKS shares plunge after small bank license setback

Stock was also downgraded by multiple brokerages including Morgan Stanley, Religare and Philip Capital

The SKS Microfinance stock dropped 15 per cent on Friday following the Hyderabad-based firm’s failure to obtain a small bank permit from the Reserve Bank of India (RBI). The stock fell 15.5 per cent — the most among BSE 500 companies — to end at Rs 380.65 a share, the lowest level in 2015.

Dewan Housing Finance Corporation, which too missed out on payment bank licence, saw its shares decline 2.19 per cent to Rs 216.35 apiece. The benchmark BSE Sensex rose nearly one per cent to 26,218.91 on Friday.

SKS Microfinance shares were also downgraded by Morgan Stanley, Religare and Phillip Capital. According to analysts, not getting the licence might constrain the long-term growth of the company, which is engaged in microfinance lending.

The RBI on Wednesday granted small finance bank licences to 10 entities, eight of which are microfinance institutions (MFIs).

Some MFIs that have been granted licences are Janalakshmi, Suryoday, Ujjivan, Utkarsh, Disha, ESAF Microfinance, RGVN (North East) and Equitas Holdings.

"In a surprise move, the RBI has not granted small bank licenses to any listed MFI players, including SKS, but given in-principal approval to unlisted players... We think conversion of nine MFIs into banks (one universal bank, eight small finance banks) would change the face of the MFI industry, with 60% of MFI credit shifting to banks (incl. Bandhan). With multiple concerns plaguing the microfinance sector, we restate SELL on SKS, cut our FY16/FY17 earnings by 5-8% and lower our September 16 target price to Rs 320 (from Rs 400)," Religare said in a note.

Shares of SKS had ran up over 5% in anticipation that the company would get a licence. The stock is down over 35% from their 2015 peak of Rs 589.50 touched on July 31.