SKS shares slip below issue price

Fall 15% intra-day amid volatility over concerns in MFI sector.

Shares of SKS Microfinance plunged below the issue price of Rs 985 in an overall firm market on Monday, for the first time since its high-profile listing in August. The company’s stock has lost nearly a third of its value in less than a month since hitting an all-time high of Rs 1,490.70 on September 28.

The stock of India’s biggest microfinance lender fell as much as 15 per cent to touch a low of Rs 894.70 during Monday’s trade on the Bombay Stock Exchange (BSE), before recovering majority of its losses. It closed at Rs 1,005.10, down 4.61 per cent, or Rs 48.60. The exchange’s benchmark Sensex ended up 0.68 per cent at 20,303.12.

The slide in SKS Microfinance’s stock intensified after its board sacked then Managing Director Suresh Gurumani on October 4.

“There is so much going on the political front for MFIs. Investors are concerned because of that,” said Santosh Singh, who tracks SKS Microfinance at Execution Noble. “The news flow about the industry is also negative,” he added.

Sebi Chairman C B Bhave said: “Sebi enquired about SKS. We have not reached a conclusion whether Sebi rules were violated or not. The process of finding out the facts is on.”

The microfinance sector has come under intense scrutiny in recent weeks, amid reports that high interest rates and coercive loan collection methods by MFIs have resulted in more than 30 suicides in Andhra Pradesh. The southern state accounts for nearly 35 per cent of microfinance lending in the country. It has passed an ordinance to safeguard the interest of borrowers with strict conditions that the MFIs would have to register with the government, must not use coercive methods to recover loans and charge abnormal interest rates, among others.

“There are concerns about interest rates being capped for MFIs. This is hurting the SKS stock,” said a banking analyst of a domestic brokerage, who wished not to be identified.

The Union Ministry of Finance has advised public sector banks to monitor lending rates of MFIs.

Also, the Reserve Bank of India has initiated a review of the priority sector status which is currently being accorded to banks lending to the MFI sector. The apex bank has also announced formation of a sub-committee to assess the MFI functioning.

“Profitability of MFIs can come down in the near to medium term if these regulatory developments are implemented,” said Pawan Agrawal, director – Crisil Ratings.

In an alert to market participants on Monday, Crisil, which rates 12 MFIs, including SKS, said it was conducting a comprehensive assessment of the impact of developments in the microfinance sector on its outstanding ratings on MFIs.