A guarded expansion strategy, cost optimisation and reduction in cost of funds have been yielding results for Bharat Financial Inclusion.

The company, formerly known as SKS Microfinance, posted an increase of 87.3 per cent in net profit at ₹146 crore in the second quarter ended September 30, compared with ₹77.86 crore in the corresponding quarter of the previous financial year.

Bharat Financial, the second-largest MFI in the country with a gross loan portfolio of ₹9,046 crore, had registered 66 per cent growth in non-AP portfolio. Its growth continues to remain rural-focussed, whereas the industry has been tilting towards building loan portfolios in urban areas. Its growth was also slower than that of the industry in nine out of the top 10 States.

This assumes significance at a time when a section of analysts have been cautioning on the rapid pace of micro lending growth in the industry.

The focus of the micro-lender on efficiencies has been showing results.

Borrowing costs

The marginal cost for on and off balance sheet borrowings (excluding managed loans), including processing fee, has come down to 9.5 per cent in Q2 this fiscal.

The cost-to-income also came down to 47 per cent in Q2 FY17 from 48.3 per cent in FY16.

This is helping the MFI slash interest rates on a steady basis. In October 2010 (the year of the AP MFI crisis), it was charging 29.25 per cent interest while it now stands at 19.75 per cent. Improved cost efficiencies facilitated 4.8 per cent interest rate reduction in the last one year, said the earnings update.

During the quarter, incremental draw-downs were ₹2,180 crore, excluding origination under managed loans. At the same time, borrowing from the top five banks (term loan and cash-credit facilities) came down to 40 per cent in September 2016.

Given the marginal cost of borrowing, 80 per cent portfolio funded by debt, and the existing tax structure, the company says a steady return on assets could be targeted.