The Hyderabad based company suffered a net loss of Rs 218.74 crore in Q1, 2011-12, as compared to a net profit of Rs 66.69 crore in the same quarter last year as the firm was hurt from huge provisions and write offs during the quarter.
The total operating income of the company declined by 46.64% to Rs 163.55 crore in Q1 2011-12 as compared to Rs 306.56 crore in Q1 2010-11.
The loan disbursals have fallen since the Andhra Pradesh Government passed an ordinance in October 2010 in response to the mass suicides by borrowers in the state. The ordinance is related to the regulation of operations of microfinance institutions (MFI's) in the state by the Andhra Pradesh Government. The strict norms hit the business of these lenders as Andhra Pradesh contributes maximum revenue to these institutions.
The ordinance prohibited multiple lending to the same borrowers and made it compulsory for MFI's to register themselves with district officials in the state. Banks have also been cautious to lend to these institutions which has made it difficult for MFIs to operate.
The company had to incur huge provisions and write offs during the reported quarter as it was unable to recover many loans due to the Andhra Pradesh ordinance which converted the recovery cycle from weekly basis to monthly, where the borrowers, which mainly come from the poorer sections had to repay a larger sum in one monthly installment rather than in small weakly installments earlier and thus defaulted.
The provisions and write offs stood at Rs 183.66 crore in Q1, 2011-12, as compared to Rs 11.95 crore in the year ago period. The total expenses increased by 114% to Rs 296.80 crore in Q1, 2011-12, as compared to Rs 138.83 crore in the same quarter last year.
Loss from operations stood at Rs 133.25 crore in the April-June quarter of 2011-12, as compared to a profit of Rs 167.72 crore in the year ago period.
However other income increased year-on-year (y-oy) by 87% to Rs 13.16 crore. The loss before interest stood at Rs 120.08 crore in Q1, 2011-12, as compared to a profit of Rs 174.78 crore in the year ago period.
The interest expenses decreased y-oy by 14%. Loss before tax stood at Rs 183.03 crore in Q1, 2011-12, as compared to a profit of Rs 101.51 crore in the year ago period. The loss on each share for the reported quarter amounted to Rs 30.24, while the EPS in Q1, 2010-11 stood at Rs 10.34 .
The draft finance bill which proposes the RBI as the sole regulator of MFI sector in India has been welcomed by the company and would help in the development of the sector and bring greater transparency in operations.
SKS Microfinance is India's only listed MFI and plans to raise Rs 900 crore through qualified institutional placement in the near future to enhance liquidity in operations. The firm will have to overcome the challenging microfinance scenario in India if it has to return to profitability again.