SKS Microfinance is confident of getting additional funding

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SKS Microfinance is confident of getting additional funding

In an interview with CNBC-TV18, Dili Raj, CFO, SKS Microfinance says, in third quarter the company was able to access Rs 400 crore. “The signal is that we would get additional funding as it is evidenced by the fact that we were able to drawdown Rs 700 crore in the month of March alone."

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In an interview with CNBC-TV18, Dili Raj, CFO, SKS Microfinance says, in third quarter the company was able to access Rs 400 crore. "For Q4, post this decision not to go the CDR way, we have been able to access incremental debt of Rs 700 crore with a combination of on and off balance sheet instruments," he adds.

He further says, "The signal is that we would get additional funding as it is evidenced by the fact that we were able to drawdown Rs 700 crore in the month of March alone. We don't see any issue in accessing additional funding for us, given our balance sheet strength."

Below is a verbatim transcript of his exclusive interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: You chose against going down the Corporate Debt Restructuring (CDR) route and chose instead to request banks for additional funding. How much money have you been able to tie up for the next financial year?

A: Basically, if we were to start from the Andhra Pradesh (AP) ordinance, in Q3 we were able to access Rs 400 crore. For Q4, post this decision not to go the CDR way, we have been able to access incremental debt of Rs 700 crore with a combination of on and off balance sheet instruments. So, far as FY12 requirements are concerned, we are in the process of finalising our business plan. We will sit across with the bankers post the corporate approvals and get their concurrence for additional funding. But the signal is that we would get additional funding as it is evidenced by the fact that we were able to drawdown Rs 700 crore in the month of March alone.

Q: Is this just an interim measure? Do you think eventually, if things stay the way they are, you would have to go in for a CDR inevitably or do you think you can tide over by having recourse to debt?

A: It is simply a question of separating men from boys. If your networth is impressive Rs 1,850 crore and if your AP exposure is a mere 25% of your total portfolio, and if the AP exposure is a fraction of your networth or not a multiple networth, there is no need for any CDR. Our non-AP portfolio collection efficiency is still in the region of 98%. We have been delivering on our promises to bankers and bankers do appreciate that. So, this Rs 700 crore drawdown is not really an interim measure, but it is in terms of confidence building measure by the banks. The real rational is that if you were to for a moment look at MCR also, now that the priority sector status is yet to stay, we don't see any issue in accessing additional funding for us, given our balance sheet strength.

Q: What is the situation with regards to AP right now? How much of a further write down would you expect to take from there over the current quarter and the next?

A: In terms of the ground reality on AP, now we have learnt to live with the AP Micro Finance Institutions (MFI) Act. But just one key problem is in terms of incremental disbursements every single credit application has got to be approved by the government authority. We punched in something like 75,000 applications, but got approval for a mere 1,200.

Just to give a macro view of it, in H1FY11, all the MFIs together put out Rs 5,000 crore in AP, that number for H2 is a mere Rs 8.5 crore. Now if you have to look at the Self Help Group (SHG) lending also, the official data is in place right now. It says that the SHG lending is lagging behind by Rs 1,800 crore. What it means is the AP MFI borrowers are denied of a credit flow of something like Rs 6,800 crore. Even if you share of 10-20% for consumption need or for that matter over leveraging or other issues, still there is a vacuum of Rs 5,000 crore.

What has happened is the way micro finance has structured, be it SHG or MFI, it is working capital finance and to an extent, working capital refinance. So, the scenario is that millions of micro enterprises in AP, for them, the working capital cycle is disrupted. So, that is the key issue. So, the moment we have the ability to incrementally disburse, then we would see the collections moving up, and that is our real request to the honorable AP government, because their action of this AP MFI Act has done good to the members in a sense they got interest rated reductions, they have clenched the recovery practices and over leveraging is greatly addressed. But, the problem is right now millions of micro borrowers are denied access to capital.