SKS Microfinance shares gain on interest rate reduction

SKS Microfinance share price gained as much as 4.59 per cent in the early trade on Friday after the microfinance lender announced a 1 per cent reduction in the interest rate (Photo: Reuters)

SKS Microfinance share price gained as much as 4.59 per cent in the early trade on Friday after the microfinance lender announced a 1 per cent reduction in the interest rate charged to borrowers from 20.75 per cent to 19.75 per cent with effect from December 7, 2015, for all future disbursals.

With this, the company becomes the first micro finance institution to charge a sub-20 per cent interest rate on its core Income Gene rating Loans (IGL) which are unsecured micro loans. Interest rate of 19.75 per cent is the lowest rate charged by any private sector MFI in the world.

At 9.38 am, the share price of SKS Microfinance was up 3.58 per cent at Rs 439.20. The scrip opened at Rs 438.25 and had touched a high and low of Rs 443.50 and Rs 437.10, respectively, in trade so far. Sensex was down 8.93 points, or 0.03 per cent, at 25,949.70. Later, the share price of the company closed 7.23 per cent up at Rs 454.65.

On the 100 basis points interest rate cut, Parag Jariwala, VP, institutional research, banking and financial services, Religare Capital Markets, said, “This augurs well for growth and market share gain as compared to competition especially with regard to small and mid-size MFIs.”

This is the fourth interest rate reduction, aggregating 4.8 per cent, announced by the company since
October 2014. The reductions are consistent with the company’s policy of passing on the cost
advantages accruing from reduction in the cost of borrowing and economies of scale to its
borrowers.

In a release, the company said, “SKS Microfinance could reduce its marginal cost of borrowing to 11.3 per cent in Q2-FY16 from 13.6 per cent in 2013-14 on account of downward adjustments in risk premium. Marginal cost of borrowing for H2-FY16 is expected to be lower than 11.3 per cent given the company has accessed refinance from MUDRA at 10 per cent and issued commercial papers at 9.5 per cent per annum in October and November 2015.”

For the quarter ended September 2015, the company posted net profit of Rs 77.86 crore, up 37.19 per cent, against Rs 56.75 crore in the corresponding quarter a year ago.

In the past one year, the share price of SKS Microfinance gained 23.33 per cent to Rs 424 on November 26. The scrip was trading at Rs 343.80 on the same day a year ago. Benchmark index Sensex fell 8.55 per cent during the same period.