SKS Microfinance has posted a robust set of fourth-quarter earnings with profit jumping over two-fold to almost ₹85 crore. Speaking to Bloomberg TV India , SKS Microfinance president Dilli Raj says broadening of borrowers’ base and cross-selling of products paid off in boosting earnings. The AUM is likely to grow 45 per cent to ₹11,000 crore at the end of FY17.
It’s been a good quarter for the company. Loan disbursements saw a strong growth. What led to this strong operational performance? How’s the business looking for the next 6-12 months?
Primarily, we have been telling that our borrowers’ base will increase. If you look at last year’s growth of 84 per cent in assets under management (AUM), there are three factors. One is the borrowers’ base increased by 27 per cent and ticket size went up by 22 per cent. And, we also introduced a new product called a long-term loan and that also added a change of 18 per cent. So, the multiplier of all these led to 84-per cent growth in AUM. Moving forward, if you look at next year, we have given the guidance that we would grow AUM by 45 per cent, up from ₹7,677 crore to ₹11,000 crore, by the end of FY17.
As you mentioned, presently, it contributes almost 9 per cent to our PAT. So in the medium term, let’s say three years from now, we would actually want 20 per cent of the expanded PAT pool coming in from these cross-selling initiatives and non-fund-based initiatives. These are all the non-loan revenues we get from our suppliers and manufacturers. That’s what we are focusing on.
What’s your average ticket size as of now and what’s the target on increasing it?
No as of now, if we exclude cross sale, it is about ₹20,500. It is still substantially lower than the industry average. So, we target a growth of 45-50 per cent, probably you’ll find 25-per cent growth in ticket size for the next three years and the rest would come from member addition.
Currently, your lending rates are close to 19.75 per cent, one of the lowest in terms of micro finance industry. With the kind of rate cuts that have happened, are you looking at any further cuts in rates? What’s your cost of borrowing currently?
Our lending rate of 19.75 per cent is indeed the lowest not just in India but all over the world. But, if we benchmark it with one of our peers, this rate is lower by 3-4 per cent. The primary reason why we have had three reductions in the interest rates in the last year, adding up to 3.8 per cent, is the reduction in our cost of borrowing. If you look at our marginal cost of borrowing, it has come down from 13.6 per cent to 9.2 per cent, primarily on account of our balance sheet strength, ratings upgrade and diversified resource basket.
We have started issuing money marketing instruments such as commercial paper and NCDs and we have the best rating in the whole sector. We are the only ones to have the A+ rating. And reflecting on these things, rates have come down and we mainly pass it down to our customers. For the next six months or two quarters, we don’t think we need to engineer any more reductions. We are compliant by the operating spread cap of 10 per cent mandated by the RBI.
Usually, the second half of the year has good loan growth. So going forward, will you be able to maintain this kind of growth that you’ve seen? What’s your current loan book and what’s the kind of growth you’re actually targeting?
Right now, the AUM is at ₹7,677 crore as against last year’s ₹4,177 crore. By the end of this financial year, we are expecting the AUM to touch ₹11,000 crore. So, that would represent a 45-per cent growth in AUM.