Dear Boarders
This message is for shareholders of SKS and just an update and clarifications of recent SKS and AP Government Controversy
Just now I watched Spandana Spoorthy the second largest but unlisted MFIs Founder speaking to Sheeren Bhan (My ex-crush) about The AP Government Ordinance to regulate MFIs. There is also an issue of capping interest rates to 16%
Spandana Director Highlighted the following to Shereen On What's Hot Show that came today live on CNBC TV 18 at 8:02 PM IST.
1)THE Top 10 MFIs constitute the bulk of MFIs. However there are hundreds of small MFIs. So there can be cases of extortion torture by them.
2)Spandana will take action after internal audit and sack any cases it gets of it's own employees who are forcing women and SHGs to commit suicides.
3)MFIs already have regulations put in that they have to abide by from The MFI association of India to regulate Interest Rated NPA and Lending limits and Technologies to adopt to reduce costs else they will be black listed by the association and not recieve funds from Banks.
4) Any reulation of code of conduct which already in place and to be added by Government of Andhra Pradesh or Centre is welcome and 16% interest rates from current 26% is dooable if RBI rants liscence and forms seperate rules of banking for MFIs and NBFCs that Finance Minister is advicing RBI and assuring MFIs. That will reduce their rates of acces to funds yo 6% and there wil be no issue of reduction in margins
5) Big IT firms like IBM and start up firms are coming up with Mobile banking softwares, tablets that have GPS for employees of MFIs to do paperless work by filling forms on tablet mobiles specially designed for MFIs...functioning etc will further reduce costs by 3%
6)Commisions earned due to services provided to partners like BHARTI, iNSUARANCE cOMPANIES Mutual Funds, Retail Giants for accessing MFIs businees networks will also be passed on 50% to consumer which will further reduce costs to 1%
So effective Interest rate will then be 14%. Which is quite reasonable considering the cost of servicing customer at their doorpsteps.
7)RBI and MFI association laws and regulation regulate overlending to one consumer at a time and MFIs and SHGs have to strictly abide by that or face cancellation of Liscence. Hence question of NPAs doesnt arise. This is not U.S. sub prime. This is Indian Banking System
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RECENT REULATIONS OF ANDHRA PRADESH AND CENTRAL GOVERNMENT ON THE ISSUE OF REGULATING MFIs
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The microfinance industry is in danger from some severe lending caps from the state of Andhra Pradesh. Sources in the finance ministry told CNBC-TV18 that the AP government is looking at passing a rule under the Money lending Act, capping lending rates at 16%.
Most microfinance institutes (MFIs) need to lend at least 25% since their operating costs are often as high as 10-11% in addition to the cost of funds which can be 11-12%. Finance ministry officials say they have tried to prevail upon the state government to desist from such a rule, since it can kill the MFI industry.
Meanwhile stray attacks on MFI offices continued in AP. A branch office of share microfinance was attacked apparently by CPI workers, while locals attacked the office of another MFI Spandana, in Anantpur.
The centre is meanwhile separately working on an MFI Act which will ensure that NBFC MFIs remain under RBI while non-profit MFIs are brought under NABARD. The law will prescribe some principles such as methods of recovery, and transparency but won’t cap rates, said banking secretary R Gopalan.
Excerpts from India Business Hour on CNBC-TV18 Watch the full show »
RELATED NEWS. AP govt may introduce Microfinance Act to control MFIs
“In this context top leaders of the MFI industry feel that the recent boardroom tussle in SKS over ESOPs and severance packages has also marred the image of the industry which in the public mind is associated with serving the vulnerable poor,” he said.
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WHAT DO BROKERAGES THINK ABOUT RECENT CONTROVERSY OF SACKING GURUMANI AS CEO
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In the controversy surrounding SKS, Kotak Institutional Equities Research has written a very positive note on the stock with an ‘ADD’ rating. Citi, Centrum, and CSFB also are positive on the stock. Internet forums are divided on the issue while mutual funds are tight-lipped
Kotak is not alone in its positive view on the stock. CSFB and Citi, too, have come out with positive notes on the stock, that too after the controversy about sacking CEO Suresh Gurumani broke out. Internet forums are divided about whether the sacking of the CEO will necessarily lead to a further fall in share prices. Not everybody believes there are skeletons in the SKS closet. However, the forums seem to agree that the political fallout of this whole issue (about charging high interest rates to farmers and people of the low-income group) could be the biggest threat to the stock.
A brief background...
SKS Microfinance, which claims to be India's biggest microfinance institution, made its debut on the Bombay Stock Exchange in August. Its founder and CEO, Vikram Akula, claimed that the initial public offering was done to raise more funds so that SKS could reach out to a larger number of poor people. This logic has been questioned time and again - how could SKS juggle the dichotomy of being a listed company - i.e., maximising profits for its shareholders and yet serve the poor effectively? Several comments about its overhyped IPO also appeared in the press. But all hell broke loose only in early October when SKS abruptly terminated its managing director and CEO of one year Suresh Gurumani, without giving any specific reason. SEBI, reacting uncharacteristically fast, asked the board to justify its action.
SKS Branch Network: Highest concentration in AP
please click the link
(Source: Citigroup Global Markets report dated 5th October citing company reports)
Moneylife has been actively writing about SKS for a long time now.
Its earliest article in July 2010 questioned the IPO premium and other issues such as the commitment of the top management, high remuneration paid to top executives, geographical concentration of business and mismatch in its assets and liabilities." (See: http://www.moneylife.in/article/81/7674.html).
After the controversy, Moneylife has written several articles about this issue:
SKS Microfinance's moves bring out the need for transparency in the industry
What brokerages say...
Despite the possible political backlash and changes of the controversy snowballing, brokerages seem to have thrown in their lot after the company. They are staunchly endorsing the stock.
Kotak has written in a note today, "We believe SKS Microfinance is well-positioned to capture the latent demand in microfinance. A meticulously-planned and scalable business platform, proven track record of maintaining low NPLs and proactive management will likely drive 60% loan book CAGR between FY2010 and FY2013E. We initiate coverage with an ADD rating and target price of Rs1,400."
Credit Suisse bought out a post-conference call note on the stock on 5th October which said that growth momentum continues to be strong and management has guided for 80% FY11 net profit growth (targeting 77% y-o-y growth in disbursements) and it does not see any of the potential regulatory changes as a threat to its business model/profitability. CSFB said that it is expecting 1H11 profits of Rs1.5 billion, a 165% y-o-y growth, and that "though the sudden management change is likely to remain as an overhang in the near term, we believe the strong earnings shall act as a support for the stock. With a Tier-I of 42%, SKS is well placed for strong loan growth for multiple years and with high ROAs (6.5%-7%) we maintain Outperform (target price of Rs1,575)."
Centrum, in an 11th October report provocatively titled "Greed is Good!" says microfinance Institutions are in a sweet spot and that SKS with its 'excellent scalable' business model is right there to lap up the opportunity. Citi too expects the stock to rise above Rs1,400.
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AS I SAID I WILL ONLY POST NOW FOR EMERGENCY REASONS TO HELP MY FREINDS AND PEOPLE WHO HAVE FAITH IN ME
KK NATRAJAN NY FREIND I HOPE I LIVED UP TO YOUR EXPECTATION OF REMINDING ME MY DUTY TO MAKE PEOPLE AWARE ABOUT SKS CONTROVERCIES AND RELAXING THEM BY GIVING THE REAL PICTURE
I apologise to boarders whose sentiments were hurt because of My Emergency posts
I also apologise to anonymus group and other critics for writing this post.
But Mr. BJ if you think this is sarcasm and Long long posts
That option is still open and is valid till you exercise that option
SHareholders of SKS
Dont worry
Setu (Sj)
Zerodha (Trading Account)
RHP
