Sequoia-Backed SKS Jumps on Microfinance Rule: Mumbai Mover

SKS Microfinance Ltd. (SKSM), India’s largest publicly traded lender to the poor, rose the most in 10 months after saying it will cut jobs and the government approved a bill shifting oversight of the industry to the central bank.

The shares jumped as much as 20 percent to 106 rupees, the biggest intraday gain since July 8, and traded 11 percent higher at 11:16 a.m. in Mumbai. SKS has gained 5 percent this year, in line with the benchmark Sensitive Index.

Draft legislation approved by the cabinet yesterday will take microfinance companies outside the auspices of state regulations, averting crackdowns like one in Andhra Pradesh in 2010. SKS said yesterday that it plans to cut its workforce by 35 percent and close branches after losses widened.

“Shares will go up further if the microfinance bill gets passed in the parliament,” said Santosh Singh, a Mumbai-based analyst at Espirito Santo Securities who has a price estimate of 120 rupees on SKS. “The decision to cut branches and employees will help the lender to reduce operating cost and return to profitability at a faster pace.”

The stock, which began trading in August 2010, slid 86 percent last year after the southern state of Andhra Pradesh unveiled tougher collection rules and founder-chairman Vikram Akula quit in November. Andhra Pradesh in October 2010 capped the interest microfinance companies can charge and barred them from coercing borrowers to repay debt following suicides by farmers unable to make payments.

Reserve Fund, Audits

The Micro Finance Institutions (Development and Regulation) Bill will require all micro lenders to register with the Reserve Bank of India, create a reserve fund from profits, and audit their results yearly.

SKS, which offers loans to the poor starting from $100, said in an e-mail yesterday that it will fire 1,200 of its 3,400 employees and close 78 branches after losses widened almost fivefold last quarter. The Hyderabad-based company has about 180 branches across Andhra Pradesh.

Earlier this week, the lender reported a loss of 3.3 billion rupees ($62 million) for the three months ended March 31, swelling from 698 million rupees a year earlier.

Sequoia Capital, which backed LinkedIn Corp. (LNKD) and Google Inc., owns 6.84 percent of SKS, according to data compiled by Bloomberg.

To contact the reporters on this story: Anto Antony in New Delhi at aantony1@bloomberg.net;

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net