SKS Microfinance Shares Drop to Their Lowest on Scrutiny of Lending Norms

SKS Microfinance Ltd., India’s biggest provider of small loans, fell to its lowest on investor concern greater scrutiny of lending practices in its largest market may curb earnings growth.

The shares dropped as much as 16 percent intraday, slipping below the 985 rupee price at which the company sold stock in its initial public offering. They fell 4.4 percent to 1,010.30 rupees, their lowest since listing on August 16, at the 3:30 p.m. close of trading in Mumbai.

The High Court of Andhra Pradesh state, which accounts for about 27 percent of SKS’s loans, said on Oct. 22 SKS must comply with new government rules that say lenders can’t charge interest exceeding the principal on loans and mustn’t coerce borrowers to repay debt. SKS, based in the state’s capital of Hyderabad, said in an Oct. 23 statement its loan charges and lending practices already meet the state’s guidelines.

“Microfinance companies in India didn’t have these levels of regulation earlier,” D.K. Aggarwal, managing director and chairman of SMC Wealth Management Services Ltd. in New Delhi, said by telephone today. “The tussle in court could have a significant impact on the working of microfinance companies.”

SKS charges a flat rate of 12.5 percent, and 26.7 percent on a declining balance, the lender said in the statement to the Mumbai stock exchanges.

‘No Adverse Impact’

“Hence, the provision will not have any adverse impact on our interest rate structure,” SKS said. The company has never adopted policies such as penalizing field officers for a shortfall in loan recoveries or deploying collection agents, or any other practice that the state is seeking to curb, it said.

SE Investments Ltd., a microfinance lender based in New Delhi, declined 5 percent today, compared with a 0.4 percent rise in the Bombay Stock Exchange’s Bankex Index.

SE Investments has no operations in Andhra Pradesh. “The stock is down because of the negative market perception towards microfinance companies,” said Managing Director Sunil Agarwal.

The Andhra Pradesh high court has deferred potential arrests of field staff and managerial personnel at microfinance lenders until the next hearing, according to the statement, which didn’t provide a date for the hearing.

Atul Takle, an SKS spokesman in Hyderabad, declined to comment.

To contact the reporter on this story: Ruth David in Mumbai at rdavid9@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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