SKS may approach RBI for bank licence

SKS Microfinance, which is passing through rough weathers, may approach the Reserve Bank for a banking licence, according to sources.

"Finer details are being worked out and (SKS Microfinance) may approach the RBI for licence after the Board of Directors approval," a source said.

SKS Microfinance CEO and Managing Director M R Rao said the company does not see any major issue in meeting the eligibility criteria set by the Reserve Bank of India (RBI).

"Our net worth is Rs 1,563 crore and we are already meeting the capitalisation norm. The draft guidelines stipulate that 25% of the branches should be located in rural/unbanked areas. Ninety per cent of our branches will qualify for the same," he said.

Rao said the composition of the board also meets the eligibility criteria with 50% of the positions being held by independent directors.

He said the bank structure brings in a lot more stability by mitigating a few risks present in the micro finance business model.

"Most importantly, as a bank you have funding capability and access to low-cost funds which will help reduce interest rates for borrowers. Of course, the operating cost and compliance cost could increase," Rao told PTI.

The average cost of funds is currently at 12.75%, the source said.

SKS which is passing through rough weathers after the introduction of Andra Pradesh government's Microfinance Act last year, has Rs 1,135 crore outstanding loan amount in the state, leading to severe pressure on company's financials.

The provisions in the Andhra Pradesh MFI Act have hampered its growth in the state, resulting in a five% reduction in the company's overall loan portfolio, SKS Microfinance Chairman Vikram Akula said in the annual report.

Analysts, however, feel that the RBI will have to check financial stability of the company before taking a desicion.

"The RBI will have to check financial stability of the company after the huge losses they declared in terms of write offs and provisions. In case they are granted licence, they will get funds 3-4% cheaper," Vaibhav Agrawal, Banking head, Angel Broking said.

The RBI draft guidelines on new bank licences stipulate 25% of the NBFC branches should be located in rural areas. Besides, the minimum capital requirement to set up a bank by a corporate is Rs 500 crore.

Source: Business Standard