SKS stock price tumbles as MFIs feel the heat

The stock market is nervous about the microfinance sector, particularly SKS Microfinance—the country’s largest MFI—which is suffering for its deeds

Recent incidents are taking a toll on the share price of SKS Microfinance Ltd, probably the country's largest microfinance company. The SKS stock, which listed on the bourses only three months ago, has come under pressure after the company's chief executive was sacked without any proper reason.

On Friday, SKS shares ended 6.8% down at Rs1,130.30 on the Bombay Stock Exchange (BSE), while the benchmark Sensex declined 1.8% to 20,125 points. Even its peer, SE Investment Ltd, was down 1.3% to Rs46. SE Investment also touched a one-month low at Rs44.50, this week.

 There is a direct cause for the sharp fall of the SKS stock price. According to a PTI report, the Reserve Bank of India (RBI) has said it would constitute a sub-committee to look into the functioning of microfinance institutions (MFIs). RBI Governor D Subbarao told reporters in Chandigarh today that the central bank board had discussed the evolving situation in the MFI.

On Thursday, the Andhra Pradesh Cabinet approved an ordinance which seeks to regulate microfinance institutions (MFIs), after a spate of suicides among the rural poor in the state, allegedly due to coercive tactics of recovery agents of these MFIs. The ordinance provides for a three-year sentence and Rs1 lakh penalty for MFIs harassing borrowers in the recovery of loans.

There are several issues associated with the company, from its business model to corporate governance, and serious personal issues related to its founder Vikram Akula.

Now, the issue of MFIs and their lending and recovery methods has raised a political storm. According to media reports, crowds of protestors led by activists of the Communist Party of India (CPI) and Communist Party of India-Marxist (CPI-M) have been on a rampage in Andhra Pradesh, attacking and ransacking offices of MFIs, particularly SKS Microfinance. One report described the kidnapping of a minor girl in Vishakhapatnam district by an MFI.

According to an expert, as long as loans are not being 'marketed', access to money is far more important than interest rates. When the alternative is loan sharks who charge hundreds of per cent per annum and insist on collateral as well, micro-loans from SKS, BASIX, HOPE or any self-help group become attractive in comparison.

Just when SKS shares climbed to a new high (Rs1490.70, on 28th September), the SKS board sacked CEO Suresh Gurumani without giving any proper reason. And even big investors, like Vinod Khosala and NR Narayana Murthy have kept mum all through the controversy. SKS has a limited operational history and no dividend record, but asked a valuation of almost 50 times its FY10 earnings, for its IPO.

Even today, several non-resident Indians (NRIs) still think SKS is a non-governmental organisation (NGO) and that with the right backing it could become a large corporation if it met the basic need of people. The truth is SKS ceased to be an NGO long ago and is now a for-profit organisation that pays fat salaries to its high profile officials. Even as the RBI struggles to find the right candidates, MFIs have recruited ex-foreign bankers and are paying them fat pay cheques in addition to stock options. (read more

When SKS came up with its IPO, Moneylife had said: "An IPO multiple of 50 reminds one of the era of tech bubble. Plus, there are other issues like commitment of the top management, high remuneration paid to top executives, geographical concentration of business and mismatch in its assets and liabilities." (Read more

During the first quarter to 30th June, incremental loan disbursement increased 81% to Rs2,283 crore. Net profit zoomed by 265% to Rs67 crore, as total revenues increased by 81% to Rs314 crore.

On the personal front, Mr Akula is also under attack from his former wife. In a letter to Moneylife this week, Malini M Byanna said that the "corporate governance" issues, or more accurately "power and control" issues, that have been long-standing, date back to our separation and divorce." (read more and Ms Byanna alleged that SKS employees were involved in the abduction of her son, as well as buying air tickets and boarding pass in both her and her son's name in order to file false criminal charges against her in India and in the US. According to Ms Byanna, SKS failed to fully disclose all pending litigation against Vikram Akula in its initial draft red herring prospectus (DRHP), after which she filed a formal complaint with the Securities and Exchange Board of India (SEBI). She said that following her complaint, SEBI asked the company to disclose the information by issuing a second public notice, but the company failed to divulge details of litigations against its directors.

Last month, speaking at the Clinton Global Initiative, Mr Akula said: "SKS loan officers are not incentivised by loan size; we want him to give out the right loan amount. The logic is to create great shareholder value as she (the woman who takes the loan) moves up the ladder to take multiple loans for multiple products. SKS has reduced interest rates from 36% to 24% and in the same period ROE (return on equity) has gone up from 5% to 22%. You can bring these two elegantly together."

Interestingly, he was engaged in a debate with none other than Nobel prize winner and founder of Grameen Bank, Muhammad Yunus, more commonly referred as the father of microfinance. Mr Yunus said: "Microcredit is not about exciting people to make money off the poor. That's what you (Mr Akula) are doing. That's the wrong message completely." (read more

As of end-June 2010, SKS has a network of 2,266 branches across 19 states and a total member base of 7.3 million. Out of its total branches, over 600 branches are in Andhra Pradesh alone. Although SKS has branches in 19 states, its business is concentrated in some five states in the southern part of the country.



Rajan Alexander

7 years ago

Micro-Finance to Face Slow Painful Death. SKS Share to enter Free Fall. Sell, Sell, Sell!

SKS, the Indian micro-finance giant’s IPO was supposed to signal the coming of age of the micro-finance (MF). Instead, it contained the seed for the destruction of the entire industry. Their Rs 10 share on listing attracted a premium of Rs 975 and such was the investor confidence, it touched a high of Rs 1,490 in a matter of days. Then hell broke loose with the industry hit by charges of them profiteering and causing farmer suicides. Its reverberations were so strong that it had been felt by the industry all over the world. The stock plunged to Rs 890 before recovering to be a tad over its listing price and hovering around this range for the last one week. Technically and fundamentally, the share looks bearish and ready for a free fall. We expose the dark underbelly of a Frankenstein unleashed by NGOs.

Read more:

k a prasanna

7 years ago


1. Micro financing started as a social cause enterprise is turning out to be blood-sucking business of the poorest of the poor and hapless sections of the society.

2. There is no concern for the poor. The management is very much concerned about their chair, salary, benefits, ESOPs and wealth creation for themselves. The recent rumblings in SKS, which removed its managing director in an unprofessional manner, speak volumes about its corporate governance.

3. Seventeen borrowers of SKS micro finance committed suicide in Sept 2010, in Andhra Pradesh.

4. MFIs have come into existence as a financial intermediary for the poor; they have actually led to further impoverishment by adopting unethical practices, resorting to multiple lending without due diligence, usurious interest rates and coercive methods of recovery, as per the survey by A P government.

5. The RBI governor has suggested the state governments were the best agencies to regulate the coercive interest rates. This will happen soon.

6. According to the new regulation, the MFIs in A P must register themselves with district rural development authorities, indicate their areas of operation, employees, number of members and credit status. It also asked MFIs to display the interest rates, among other things. Dubious methods followed earlier wont work any more.

7. The proposed ordinance is likely to insist on MFIs being registered with district rural development agencies, apart from imposing a three-year imprisonment and/or Rs 1, 00,000 fines on erring MFIs.

8. The A P government is working out a policy to put a ceiling on interest rates charged by MFIs.

9. Unsustainable business model: The business model will not sustain in the end.

10. No commitment from the promoters: SKS’s founder and chairman sold his shares to Tree Line Asia Master Fund (Singapore) Pte for $12.9 million in Feb. this year.

11. Look at the salary of top executives:

Suresh Gurumani (now sacked) - Managing Director of the Company. The total monthly salary is Rs. 12, 50,000. In addition to the above, Mr. Suresh Gurumani was paid onetime bonus of Rs. 10,000,000, in April 2009.

Dr. Vikram Akula - chairman Rs 70.00 lacs p.a. In addition, ESOP amounting to Rs10.97lacs, totaling Rs 1.79cr p.a. These people are trying to eradicate poverty. LOOK AT THEIR MIND SET.

12. Mohd. Yunus says (The father of micro finance) - “I get very worried when investment funds come to microfinance,” said the founder of Bangladesh’s Grameen Bank, which pioneered the industry by giving small loans to rural women to start their own businesses. “I don’t want to excite businessmen that there is profit to be made here,” And the promoters in India says the business is exiting (exploitation of the poor).

13. The IPO of SKS micro has already made the promoters and other venture capitalists including some P/E funds that have stakes in these companies’ millionaires. The hapless borrowers continue to live in abject poverty and are committing suicide.

14. Government /RBI will not be mute spectators to the exploitation.
They are bound to regulate the segment further. This will make the business un- attractive.

15. Financial inclusion initiatives taken by the public sector banks will marginalize the micro finance business.

16. The average cost of acquisition of shares by promoters of SKS promoters is less than Rs50/-

17. RBI has constituted a sub committee to look into the functioning of MFI sector. Basing on the recommendations of the committee further stringent measures is expected.

18. Most of the favourable research report on MFIs is paid research report. DO NOT BELIEVE THEM BLINDLY.

19. The A P is examining loan swap of MFIs with other banks, thus giving no room for scale up of operations by MFIs.

20. Look at this irony – the wealthiest and the richest industrialists/business men in the country have access to the cheapest credit, around 8% p.a. from Banks and Financial institutions. Where as the poor, the down trodden and the and other unfortunate sections of the society pays the highest interest, anywhere between 30%-40%p.a. when they borrow from the Micro Financial Institutions (MFI). This cannot go on for very long.

21. The multiple lending (the same borrower taking loans from several MFIs), is very rampant, and this bubble will burst one day. Servicing multiple loans every week is not easy, particularly when they are disbursed under group guarantee, creating peer pressure not to default.

22. The poor are vulnerable to emergencies like flood, drought, illness and marriage. So the claim of near 100% recovery by MFIs are either farce or the figures are fabricated.
23. Private equity and the global financial crisis have brought in senior managers from the financial world at what is considered exorbitant salaries to the world of microfinance. This is temporary phenomena.
24. Thus, there is a danger of microfinance not only being unable to remove poverty but end up as debt enlarging institutions.
25. MFIs clarification that their rate of interest is lower than the rate charged by the local moneylenders holds no water. The truth is, in the name of helping poor, the poor is being exploited by these MFIs.


7 years ago

I don"t see much difference between MFI and personal loan concept if MFI are charging almost 30% interest-it is new name for personal loans which got a negative name few years back and MFI has come as new bottle to fill the vacuam.

R Balakrishnan

7 years ago

Normal NFBC stocks should be valued at between one to one and a half times book value. Given the regulatory environment and the certainty of providing for bad loans, this is the typical band for valuation. Anything more than that is akin to treating this sector as a stamp collection or a picasso.
And in a business that is totally non transparent, full of frauds, cash collections, forced insurance selling and non scalable, even this band is generous. Dividend discount models are the ideal ones to value these kind of companies. And a local business, when scaled nationally, in this industry, actually should dent valuation severely. Wonder when ANALysts will understand this.

k a prasanna

7 years ago

What our Narayan Murhty of Catamaran Venture Fund has to say about the rumblings in SKS, the blood sucking organization of the poor. One do not understand what made him to put his money in SKS which charges interest of 30% p.a. on the money lent to poor.



In Reply to k a prasanna 7 years ago

Mr Narayana Murthy is a business-man and a shrewd investor first. He lent his "brand value" to SKS by investing (through Catamaran) and in return got very cheap stock (compared to IPO price). He is fully justified in making money through this "investment".

Most romantic notions of Narayana Murthy are the media's perception and one shouldn't get confused by those. Murthy can be lauded for international blue-chip standard corporate reporting, overall transparency and the western MNC standard marketing and brand building. Expecting him to be a "voice of conscience" over anything under the sun doesn't do anybody's intelligence justice.

k a prasanna

In Reply to Ganesh 7 years ago

Mr. Narayana murthy is on the advisory committee of SKS. However,the values,for which Infosys and Narayan Murthy are are famous, is missing in SKS. Sometimes, the color of currency overrides many things.


In Reply to k a prasanna 7 years ago

You bet! I couldn't have put it better than you. Mr Murthy - by just spending 1% of his wealth on funding free open source software R&D could have changed the face of computing, atleast in India where his fame carries a lot of (atleast marketing) weight.

But he is a product of the corporate world and justifiably has total discretion in how he spends/invests his money and brand. This just teaches us retail investors not to be swayed by such marketing and be extra careful where we put our money and as individuals, support which causes.

k a prasanna

7 years ago

The business is unethical and un sustainable. First Choice had indicated all these while analyzing the IPO. The RBI, Central and State governments, Ministry of Finance are likely to implement to more measures to rein in these modern day shylocks. The MFI bubble will burst in the very near future.

Textile industry seeks PM intervention over cotton exports

New Delhi: The textile industry has sought the prime minister's intervention for ensuring availability of cotton for domestic firms considering that exporters registered 55 lakh bales cotton for exports within 10 days of the government initiating the process, reports PTI.

The government has permitted export of 55 lakh bales of cotton (of 170 kg each) for the period ending 15 December 2010. Registration of export contracts was started on 1st October while the shipments are to begin from 1st November.

However, the total contracts have already touched the ceiling of 55 lakh bales, spurring fears of cotton shortage in the country.

"This will lead to a cotton famine in the country and mills will be forced to close down or scale down production drastically," Confederation of Indian Textile industries (CITI) chairman Jaipuria said in a letter to the prime minister.

Completion of export registration within 10 days means that exporters would need to acquire this quantity by November end and ship this out by 15 December 2010, the confederation said.

Even if last year's ending stock of 40.5 lakh bales as estimated by Cotton Advisory Board (CAB) is taken into account, there will be practically no cotton stock left if 55 lakh bales get exported during this time," Mr Jaipuria said.

"This scenario has pushed up cotton prices to over Rs41,000 a candy, as against Rs23,000 a candy that prevailed during this time last year," Citi said while urging the government to delay the cotton exports against the contracts already registered, up to 1 January 2011.

Each candy consists of 356 kg of cotton.

Citi also demanded the withdrawal of export incentive of 1.5% given by government on cotton exports.

Earlier, the government had announced that duty free exports of 55 lakh bales would be allowed in the current cotton marketing season.

The commerce ministry had said that exports beyond 55 lakh bales would attract duty. To curb exports in wake of rising domestic prices of cotton, a duty of Rs2,500 per tonne was imposed.

As per conservative estimates, the cotton production in 2010-11 is likely to be 325 lakh bales. However, the agriculture ministry expects the yield to touch 335 lakh bales.


SBI experiments with Rs1,000-crore retail bond issue

The country's largest lender aims to tap the retail market through an
attractively-priced bond issue for the first time; plans to create a secondary market for the same to enable further such issues 

India's largest public sector bank State Bank of India (SBI) is trying to gauge the feasibility of availing another funding avenue. The bank today announced the public issue of Lower Tier-II Bonds worth Rs500 crore, with an option to retain oversubscription upto Rs500 crore for issuing additional bonds aggregating to a sum of Rs1,000 crore for resident applicants. The bond issue is SBI's first foray into the retail bond market and is part of the bank's strategy to develop another avenue of funding by creating a secondary market around the same.

The issue has been priced rather attractively for a bank which can otherwise access funds at a much lower cost without breaking sweat. Available in two series having maturity of 10 years and 15 years respectively, the issue offers a coupon rate of 9.25% and 9.5% respectively on the same. This is in sharp contrast to the bank's retail deposits which attract rates substantially lower at 7.5%.

SBI chairman OP Bhatt stated categorically that the pricing was purely based on the fact that the bank was coming out with such an issue for the very first time. The current upward bias in interest rates also was a factor behind the pricing, Mr Bhatt said. Commenting on the reason for bringing out such a product, he said, "We want the option of having this market available on tap. We wish to create a secondary market around this avenue, which will allow price discovery to take place."

Depending on the investor response to this issue, SBI will take a call on bringing out more such issues, even on a quarterly basis. Although the stated objective of the issue is to shore up the capital adequacy ratio (CAR) of the lender, it is not the most compelling factor. The chairman pointed out that the bank was looking at the option to avoid a long term liquidity mismatch. "We felt there is a need for having specific long term liquidity in our portfolio," said Mr Bhatt.

The bonds are proposed to be listed on the National Stock Exchange (NSE), where investors will trade freely in the open market. The retail portion forms 50% of the issue size while the balance is being offered to high net-worth individuals (HNIs) and qualified institutional buyers (QIBs). The bonds are to be issued compulsorily in a dematerialised form.

With a minimum application size of Rs10,000, these bonds will be allocated on a 'first-come-first-serve' basis. The issue will be open for subscription from 18 October 2010 and will close on 25 October 2010. The bank has an option to call back the bonds after 5 years and 1 day for the 10-year bonds and 10 years and 1 day for the 15-year bonds. If the bank does not exercise this option, the investor will be offered the coupon rate plus an additional 0.5% on the bonds. 




7 years ago

It may be cleared that what will be the matured value/amount of bond of Rs.10000/- after ten years ?Also what will be the income tax rebate ?

We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)