India's largest micro lender SKS Microfinance plans to raise a maximum of 5 billion rupees ($97.25 million) through a share sale to institutional investors by March 2012, its chief financial officer said on Wednesday.
The company's board had approved an enabling resolution to raise up to 9 billion rupees last month.
"The idea is not to raise the entire 900 crore (9 billion rupees). We really don't need it, because this is not for capital adequacy purpose," Dilli Raj, told CNBC-TV18.
"This is to be looked at as growth... and I would even say opportunity capital (being) raised."
The firm said it planned to cap the return on assets at 3 % for its microfinance business, it said in a statement.
Its return on average assets were 2.35 % in the last fiscal year, down from 4.93 % in the earlier year.
"Capping will bring down their margin as there was no cap earlier," said Abbas Merchant, Vice President- Research at Jaypee Capital.
Suresh Ganapathy, analyst at Macquarie Capital, said that SKS would have to bring down lending rates, which might further reduce profitability.
SKS has been beset with bad loans, boardroom struggles and a plunging stock price since a successful public offer last August, when it raised $358 million.
That has culminated in the resignation of founder Vikram Akula in November with an independent director being named as an interim replacement.
India's microfinance sector came under severe scrutiny after Andhra Pradesh, the industry hub, imposed a set of restrictive laws last year that severely curtailed microfinance activity in the state, scaring away banks and investors and prompting many small to mid-sized lenders to the poor to shut shop.
The sector is now awaiting passage of a law in the national parliament that would make the central bank the sole regulator of the sector, overriding the restrictions imposed by Andhra Pradesh.
SKS, the only listed microfinance firm and considered the bellwether for the industry, also said it would house its non-microfinance businesses under a fully-owned unit.
Earlier in the year, SKS had diversified into loans for mobile handset and gold loans to offset the uncertainty of the cashflows in the microfinance business.
"For clarity purpose, the idea is to stick to core business on the microfinance side, because the prospects are huge in the non-Andhra Pradesh states," he said, adding the other businesses would be run through the new unit.
The core microfinance activity would be 90 % of the asset mix of the firm, Raj said.
"The non-microfinance (business) would generate about 20 % of revenue over a period of time."
SKS plans to service 15,000 kirana stores, up from 4,000 currently and extend loans for purchase of 550,000 mobile handsets from 280,000 currently, MR Rao, managing director and chief executive at SKS, said in the statement.
SKS will continue with 50 branches in the current fiscal year which will offer gold loans, Rao said.
The company also plans to invest 150 million rupees ($2.9 million) over the next three years toward improving client protection practices, an area that critics say had been ignored by profit-oriented lenders.
At 1.12 pm (0742 GMT), shares in SKS Microfinance were locked at the maximum daily limit, up 5 % at 113.50 rupees in a firm Mumbai market.