The stock of SKS Microfinance, the largest microfinance company in India, had commanded a valuation which was at a premium to even the priciest private banks last year. That was also when it hits its all time high. The company’s for-profit model to finance under-served population, high-growth opportunities, high spreads and the then-low delinquencies enthused the market.

However, fortunes reversed due to corporate governance issues and borrower suicides in Andhra Pradesh (AP) leading to regulatory intervention. AP, the then-largest state in terms of microfinance loan disbursement, introduced an Act putting strict restrictions on Micro Finance Institutions (MFI) and brought SKS’s business in AP to a grinding halt.

As customers hid behind the MFI Act, the asset quality in APdeteriorated. Even as the RBI has since come up with regulations, there is still little clarity as to whether AP would ease its rules to make way for RBI regulations. SKS declared losses in the September ’11 quarter, the third quarter in a row. The losses for the first half of this fiscal surpassed the collective net profits earned over its lifetime. With much of the AP portfolio written off, the loan book has shrunk to two thirds its March 2011 levels. Besides AP, the portfolio is also witnessing moderation in collection efficiency which may prompt the company to go slow on expansion.

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