India: SKS Chairman Sees Healthy Growth if RBI Sole Regulator

Feb 2011
Mumbai, India, February, 03 2011 - India's microfinance sector can expect healthy growth if the Reserve Bank of India (RBI) becomes the sole regulator for the sector, SKS Microfinance chairman Vikram Akula said on Thursday.

The fast-growing Indian microfinance sector suffered a setback in October when Andhra Pradesh, which had the largest microfinance market in the country, approved legislation to regulate the industry following complaints about high interest rates, aggressive recovery practices and overextended borrowers.

"The Banking Act supercedes anything else in the country," and it would be a matter of time before the RBI became the single regulator of for-profit microfinance companies resulting in "measured, yet healthy growth," Akula told reporters.

Growth in the sector would be significantly affected if Andhra Pradesh does not recognise the RBI as the sole regulator, he said, adding the company may have to downsize its operations in the state.

The RBI panel earlier this month recommended an interest rate cap of 24.7 percent, limited to two the number of microfinance firms that can lend to the same borrower, and also called for a customer protection code for microfinance companies.

The creation of a separate classification of MFI-NBFCs (microfinance institution - non-banking finance companies) and access to priority sector lending to companies that fall under this category were two of the recommendations that Akula highlighted as being positive to the sector.

The RBI formed a panel in late October in response to the Andhra Pradesh rules, which severely curtailed microfinance activities in the state, curbed collections and hurt new business.

The much-debated interest rate cap recommended by the panel will not affect SKS as the company charges borrowers less than the committee's suggested cap (24.55 percent), Akula said.

However, it will affect smaller lenders that do not have the operational efficiencies of larger companies, he said.

"This is not accidental. This is by design because what the committee wants is consolidation," Akula said.

Shares of SKS, which is based in Hyderabad, the capital of Andhra Pradesh, which have fallen about 30 percent since November when the state's new microfinance rules came into effect, closed up 8.46 percent on Thursday.

SKS, which posted a 38 percent drop in net profit for Oct-Dec to 341.55 million rupees on total income of 3.85 billion rupees, currently serves 7.7 million borrowers across 19 states.

SKS disbursed 22 percent fewer loans, in Oct-Dec, after the Andhra Pradesh law took effect, than it did in the same period in 2009.

As of Dec 31, 2010, the company had a loan portfolio of 50.28 billion rupees, 24.5 percent of which is in Andhra Pradesh.

Source : Reuters

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