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SKS Micro soars 19% on cabinet approval to Microfinance Bill

An average Dunkin Donut store is likely to be around 1,200 – 1,400 square feet. The cost of setting up one store could range from Rs 60 lakh to Rs 1.2 crore depending on the location

The JPMorgan headquarters at Canary Wharf in London.
The JPMorgan headquarters at Canary Wharf in London.

Shares of SKS Microfinance, the only listed microfinance company in India, soared nearly 20 per cent to an intraday high of Rs 105.70 Friday after the cabinet approved a bill aimed to bring microlenders under the Reserve Bank of India's oversight yesterday.

The Microfinance Institutions (Development and Regulation) Bill needs parliament's approval to become a law. The need to regulate the sector arose after microlenders were accused of aggressive lending and recovery practices and high interest rates.

In October 2010, the Andhra Pradesh government cracked down on the sector, which resulted in a drop off in loan collections and a drying up of funding for microlenders.

SKS Micro's business in Andhra Pradesh, which was a microfinance hub earlier, was also hit though the lender has said it is not planning to close its business in the state. The company's loan portfolio in Andhra Pradesh shrunk to Rs 236 crore in the March quarter from Rs 1,311 crore a year ago as it was forced to write off some credit.
SKS Micro has been beset with slowing business and a boardroom struggle that has sent its stock plummeting after a successful initial public offering in 2010 in which it raised $358 million (over Rs 1,500 crore). It saw the exit of its founder Vikram Akula in November 2011. The stock is down 92 per cent since its market debut.

At 10 am, shares of the company traded 12.90 per cent higher at Rs 100.20 on the BSE, while the Sensex was down 0.58 per cent at 16,324. Over the last year, SKS Micro shares have lost 72 per cent of their value, falling from Rs 360 to sub Rs 100 levels. In contrast, the Sensex has lost 11 per cent in the same period.

On Thursday, the company announced cutting 1,200 jobs and closure of 78 of the 180 branches it operates in the Andhra Pradesh. SKS Micro employs 3,400 people in the state.

SKS Micro's loss in the January-March quarter more than quadrupled to Rs 330 crore, reflecting the sliding fortunes of the country's beleaguered microfinance sector. It has been posting losses for the last six quarters.

The company, however, said on Thursday it was not facing any liquidity or solvency issues and that it had healthy cash and bank balances.

(With inputs from Reuters)