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SKS plans to cut rates to 24% across all states
Last month, the Andhra government through an ordinance imposed a limit on rates that the industry can charge customers New Delhi: SKS Microfinance said on Tuesday it was planning to cut interest rates to 24% across all states, after an ordinance passed by the southern state of Andhra Pradesh imposed serious restrictions on its business model.
The latest move follows the company’s announcement last month that it had cut its annual rate of interest to 24.55% from 26.69% effective immediately in Andhra Pradesh.
“The ordinance and its implementation will have material impact on the company’s operations in Andhra Pradesh,” India’s leading lender to tiny businesses said in a statement.
The company is still not in a position to comment on the material impact, and it was yet to decide on a time frame to implement the rate cut, a SKS spokesman told Reuters.
Microfinance industry, which surged to prominence when George Soros-backed SKS raised $358 million in an IPO, faces a regulatory clampdown that could erode profits and hurt growth.
Last month, the Andhra Pradesh government through an ordinance imposed a limit on rates that the industry can charge customers and also curbed aggressive recovery practices following several suicides by borrowers in the state.
The state contributes 28% of the current loan portfolio of the company.
SKS is in talks with the Andhra Pradesh government and regulators like the Reserve Bank of India and ministry of finance for “rectifying onerous aspects of the Ordinance and its implementation,” SKS said.
Microfinance firms typically give loans to small businesses that have no access to banks and charge an effective rate of 28-32% a year, about double the rate on bank loans.
Apart from Soros, SKS is also backed by investors like Sequoia, Kismet Capital, Unitus, venture capitalist Vinod Khosla and Infosys Technologies founder N.R. Narayana Murthy.
Shares of the Hyderabad-based company, which the market currently values at more than $1.6 billion, were down 3.3% at 966.85 rupees in a Mumbai market that was down 0.33%.
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