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SKS Microfinance Says Proposed Bill Positive for Industry

SKS Microfinance Ltd., India’s largest listed lender to the poor, says a proposed bill to have the central bank regulate the industry will help ensure orderly sector growth, according to its chief financial officer.

It’s “hugely positive” for the country’s microfinance lenders, CFO Dilli Raj said at a televised press conference today in Hyderabad, where the company is based.

The bill would take microfinance companies outside the auspice of state regulations, averting crackdowns like one in the southern state of Andhra Pradesh last year that saw microfinance lenders’ debt collections fall to below 20 percent. JPMorgan Chase & Co. analysts led by Seshadri K Sen predict that loan recoveries from the state, the industry’s largest market, are unlikely even if the new bill is passed.

“This could be positive for SKS given severe operational restrictions under” Andhra Pradesh’s microfinance act, JPMorgan said in a July 7 note to clients, maintaining an “underweight” rating, citing “fundamental flaws” in the business.

Shares of SKS rose 20 percent to 411 rupees at 12:21 p.m. in Mumbai, the most since they were listed last August. The shares have fallen 62 percent since the listing.

The Micro Finance Institutions (Development and Regulation) Bill, dated June 20, will make it necessary for all micro lenders to register with the Reserve Bank of India, create a reserve fund from profits, and audit their results each year.

“Another important point is that microfinance is exempted from the definition of money lending,” Raj said. “What it implies is that microfinance will be out of the purview of various state legislations on money lending. This reinforces the concept of a sole regulator.”

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