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Expect customer base to grow 22-25% in FY17: SKS Microfinance

SKS Microfinance reported healthy fourth quarter earnings result on Wednesday.

Assets under management (AUM) stood at Rs 7676 crore, up 84 percent year-on-year (YoY), while the gross non-performing assets (GNPA) decreased to Rs 4.1 crore against Rs 6.3 crore sequentially.

Speaking to CNBC-TV18, MR Rao, CEO and MD, of the company said that increase in number of borrowers and ticket size is boosting growth and expects to see 22-25 percent growth in its customer base for FY17.

Securitisation will be on a quarterly basis from FY17 and there are no plans to venture in to other businesses.

Below is the verbatim transcript of MR Rao’s interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy.

Latha: It is very difficult to poke any mistake or any negative in the set of numbers. So, let me start with the only one that offers a question, provisions. Why are they higher?

A: Provisions are on account of higher loan growth. It is on account of standard asset provisioning.

Latha: And then you have spoken about a 50 percent guidance in terms of the FY17 growth. Where is that confidence coming from. Will it be largely Andhra Pradesh and will it also go on to the margins?

A: Andhra we are not doing anything. So, no growth is going to come from Andhra. The growth is going to come from three elements. One is increase in number of borrowers and we are planning to acquire 2.6 million new borrowers. Then the second is going to come on account of increase in ticket size as a woman completes a loan and moves on to the next cycle she tends to take a higher loan.

Latha: When you say 50 percent is it Net Interest Income (NII) that you are expecting to grow 50 percent or is it total assets under management (AUM) that grow 50 percent?


Sonia: The disbursement growth has been very healthy in this quarter, 63 percent. Can you just throw some more light on where the demand has come in from, have you see better ticket sizes, what kind of geographies are doing well and also what will lead to this 37 percent growth in FY17 that you guided for?

A: In the case of the asset growth for the last year 27 percent came from increase in number of borrowers, 22 percent has been contributed by increase in ticket size and 18 percent has been contributed by change in loan duration. So, as I said for a woman who moves up from one cycle to the other she tends to take an incrementally higher loan. So, the loan duration which is greater than 30,000 now and greater than 15,000 earlier was a two year loan cycle. So, these are contributing to the increase in loan book.

As far as customer acquisition and loan growth, it is more or less uniform across the country except for very few states, smaller states, like let us, Punjab and a couple of other states but the loan growth has been more or less uniform across all the states.

Sonia: You said 22 percent was the increase in the ticket size over the full year, but what have you seen in this quarter itself in ticket size rise both quarter-on-quarter (Q-o-Q) and year-on-year (Y-o-Y)?

A: This quarter has seen much higher increase because of the change in Reserve Bank of India (RBI) guidelines where they have increased the ticket size to 30,000 for a tenure of one year as against 15,000 earlier.

Latha: What is your Net Interest Margin (NIM) for the quarter gone by, the year gone by, any guidance for the current year?

A: So, NIM margin is 9.6 percent for the quarter and it is kind of almost same for the entire year.

Latha: Does it see some pressure in FY17?

A: No, we don\’t see the pressure. In fact we are dictated by the RBI guideline of 10 percent margin. We have consistently dropped our interest rate as and when we exceeded the 10 percent.

Latha: I ask because there are more microfinance companies, also some of them with small bank licenses. So, you can expect more competition from Janalakshmi, Ujjivan, Equitas, a lot of them operate in areas where you operate. So, I am asking if margins may see some competitive pressure?

A: On the contrary we are the cheapest provider of microloans at 19.75 percent. So, the companies that you mentioned are at 22-23. So, they have a lot to catch up. So, we don’t see that as a big issue.

Sonia: Do you have any kind of internal guidance on what the growth in the number of borrowers could be for the next year? You said there was a 27 percent increase this year. What are you factoring in for the next year?

A: We will acquire about 2.6 million more borrowers.

Sonia: That will be a growth of?

A: 20-25 percent.

Latha: You have this superb income coming in from securitisation, isn’t it? With banks hungry for priority sector finance and therefore willing to buy your securitised paper. Therefore should we expect that your margins will actually increase?

A: Earlier till this year, or the year that got completed securitisation was done mostly at the end of the year, but from this year the banks will be monitored at a quarterly basis. So, we expect the securitisation to be spread across the year. In terms of margins we don’t see significant impact on the margins.

Latha: Would the cost of money fall for you?

A: Yes, that is about 100-150 bps.

Latha: You see that falling in FY17?

A: Yes.

Latha: What is the reason for changing your name, Bharat Financial Inclusion Limited, does it make it more amenable for you to get a small bank license?

A: No, it is not with an eye on the small financial bank license. It resonates with our rural spread. We are present in about 100,000 rural villages and it resonates more with the network that we have. The initiatives that we are embarking on going forward. That is the reason we changed the name.

Latha: Actually how many states are you present in?

A: 19 states.

Sonia: So, your cross selling penetration has increased quite a bit over the years. From four percent to almost 28 percent over the last couple of years. Any new areas that you have identified for cross selling?

A: Cross selling is in terms of less about areas and more about what are the products. So, what we have added is bicycles in the last one year, sewing machines. So, these are all items which help – sewing machines help in income generating for the women. Cycles for people to carry their goods and stuff and make them more efficient. So, picking up only those items which are a value add to the borrowers in the segment.

Latha: Do we see you doing exactly the same kind of business or we see you becoming an non-banking financial company (NBFC) attending to SME loans or anything like that?

A: No, we will stick to the core of micro-finance and cross sell items that we are going to keep continuing to look at are ones which make an impact on the women’s life.

Latha: I agree, that is a separate question. I know you are going to proceed with that. Some of the finance companies do diversify. So, I am just asking if you get into kind of small company loans?

A: There is no plans on that front so far.

Latha: You have a finger on the pulse of the rural economy more than anyone else. Is there any indication that the rural distress is declining and rural demand is improving?

A: What we have noticed, a very interesting fact is that because of poor monsoon people are shifting away from at least as a temporary measure and we need to see how long this will continue shifting away from agriculture and getting into some quick income generating activities to make their day to day living.

So, we see the demand picking up in terms of buying buffaloes or more people trying to run kirana stores and so on and so forth which helps them generate cash flow on a daily basis and that is where you see the demand of – we acquire about 2.2 million customers last year and we will acquire 2.6 million customers this year.