SKS sees near term pain, sector consolidation-execs | india | Hindustan Times
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SKS sees near term pain, sector consolidation-execs

india Updated: May 10, 2011 16:00 IST

Reuters
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Lender SKS Microfinance, whose shares have taken a massive beating amid ballooning provisions, expects near-term pain and predicts consolidation in the embattled sector, the firm's top executives said on Tuesday.

"Probably there would be near-term pain for a quarter or two," SKS chief financial officer Dilli Raj told reporters at a briefing on Tuesday.

Once-thriving microfinance sector has been reeling since Andhra Pradesh, a southern state that was its largest market, clamped down on business practices such as high interest rates and aggressive loan recovery practices last October.

Loans as low as 2,000 rupees ($44) at interest rates that have topped 30% are used by the country's poor for ventures such as buying livestock or opening a tea stall.

Some spend the cash on consumer goods or to send their children to school.

Analysts expect SKS' collection rate from Andhra Pradesh to dip to as low as 10% this fiscal year, and have said write-downs of bad loans could squeeze liquidity for the company.

SKS, country's biggest and only listed microlender, swung to a big fourth-quarter net loss last week, weighed down by provisions and write-offs of 1.06 billion rupees in the quarter.

Central bank last week set an interest rate cap of 26% on micro loans, 2 % points higher than recommended by a panel, and announced moves that were broadly perceived as being friendly toward the ailing sector.

"The interest rate cap of 26% and the margin cap of 12% means only large, efficient MFIs that have already reached certain economies of scale will be the ones that will continue to operate," SKS founder Vikram Akula said at the briefing in Hyderabad, the capital of Andhra Pradesh.

He added that the central bank's rules would make it difficult for smaller players to survive.

George Soros-backed SKS, which surged to prominence when it raised $358 million in an initial public offering in August, on Friday posted a net loss of 697.7 million rupees in the fourth quarter, compared with a profit of 628.9 million rupees a year earlier.

Credit Suisse on Monday downgraded the stock to "underperform" from " out perform ," saying it expected 90% of the Andhra Pradesh book to turn to non-performing loans this year.

JPMorgan on Friday cut its price target on the stock, citing a weakening business model and concerns about liquidity.

The stock's prolonged slump has knocked off 80% of the market value from the stock's peak of 1,491.50 rupees in September.

SKS shares gained 10% on Tuesday, but have plunged 34 percent in the previous two trading sessions to touch their all-time low.

The shares slid 20% on Friday after analysts forecast a gloomy outlook for the sector. They extended losses by as much as 19 percent on Monday, the first trading day after the microlender posted quarterly results.