SKS Microfinance's business is likely to be hit by Andhra Pradesh MFI Act for the next two quarters, according to its Chief Financial Officer, Mr Dilli Raj.

Addressing a press conference along with Mr Vikram Akula, Chairman, SKS, Mr Raj said: “There could be a near-term pain for one or two quarters but the business model validity is in tact.”

On the Rs 237-crore provision by the company to tackle losses being faced in Andhra Pradesh during 2010-11, he said it was done as an additional precaution as Reserve Bank of India norms warrant only Rs 40-crore provisioning.

The Hyderabad-based SKS has Rs 1,287 crore outstanding loan portfolio in AP, while in the non-AP regions it was at Rs 2,861 crore.

It posted a loss of Rs 70 crore in the fourth quarter while for the full-year the net profit declined by 36 per cent to Rs 111 crore.

Mr Vikram Akula said the present “challenges” were external: “They have affected not just our balance-sheet but the entire sector. We are reinventing our company and reinventing microfinance,” he said.

STRATEGY

SKS would adopt a three-pronged strategy of consolidating existing clients, diversification of products and a consensus-based dialogue with the AP Government to relax some of the provision of its Act, he added.

The company was unable to operate in AP as it could just disburse 1,643 loans in the last six months compared to over 12 lakh loans in the year-ago period, he added.

SKS would move into the secured loan segment by scaling up the number of branches for lending against gold from existing five to 400 by the end of 2011-12.

Further, pilots done earlier on loans to purchase mobile phone handsets and advances to grocery stores will be expanded, Mr Akula said.

On the industry scenario, he said the RBI's cap on interest margin and rate of interest would make it difficult for smaller MFIs to survive lending to consolidation.

The SKS scrip on Tuesday climbed 10 per cent on the Bombay Stock Exchange to end at Rs 297.85.

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