SKS cuts lending rates by 1% on lower fund cost, profit rise

The micro-lender will charge 23.5% interest rate from its borrowers as against the prevailing 24.5%

With some respite in its borrowing cost in the first quarter due to the profit it had made last year and on higher capital base, SKS Microfinance has announced 1 percentage point reduction in lending rates.

The only listed micro-lender said effective October 1, it will charge 23.55% interest rate from its borrowers as against the prevailing 24.55%.

The announcement comes on back of the company reporting an manifold jump in June quarter net income at Rs 49.32 crore from Rs 4.96 crore in the year-ago period.

Explaining the rationale behind reduction in lending rates, SKS Microfinance President Dilli Raj said the company is passing on the cost advantages accruing from economies of scale, operational efficiency and reduction in the cost of borrowing.

"The improvement in our ratings on account of a full year profit of Rs 70 crore in FY14 and Rs 400 crore we raised from institutional investors in May this year has helped bring down our fund cost in the first quarter. So we are passing on this to our customers," Raj told PTI.

The Hyderabad-based micro-lender's cost of borrowing came down by nearly 1 percentage point to 12.6 in first quarter of the current fiscal from 13.5% for FY14.

Its short-term ratings were upgraded from A1 to A1+, while the long-term ratings improved to A+ from A2. This improvement in ratings has given banks confidence in SKS which resulted into access to cheaper funds, Raj added.

In the three months to June, SKS reported an 11-fold rise in net profit of Rs 49.32 crore from Rs 4.96 crore in the corresponding quarter last year. It had an incremental draw- downs of Rs 575 crore in the reporting quarter.

Net interest income grew by 41% at Rs 89 crore from Rs 63 crore last year. SKS' portfolio, excluding Andhra Pradesh and Telangana, posted 39% Y-o-Y increase at Rs 2,783 crore in the June quarter from Rs 2,003 crore.

Loan disbursements grew 40% to Rs 1,160 crore in Q1 from Rs 830 crore a year ago, while its networth stood at Rs 891 crore and capital adequacy at 39.6%. The company had cash and cash equivalents of Rs 488 crore at the end of the reporting period.

The firm said the unavailed deferred tax benefit of Rs 542 crore would be available to offset tax on future taxable income. Given the carried forward tax loss, it did not made any tax provision in the first quarter.