Securitisation to shave off 150-200 bps from borrowing cost: SKS

A: Towards Q3 and Q4, there is a huge demand for agri and allied exposure as banks have to fulfil their direct and indirect targets. So this is a fifth securitisation of more than Rs 1,500 crore [that we have undertaken]. Normally these transactions are priced about much lower than term loan. This helps us to bring down the cost of borrowing further.

Nigel: Could you tell us how much will your cost of borrowing come down by - that first question and second, you said Rs 1,500 crore is what you have done till now. Are you looking to take that up? What is the size of your total book?

A: Normally securitisation transactions will be priced 150-200 bps lower than a comparable contemporaneous term loan. All these transactions have done about 8.25 percent which is substantially lower than our marginal cost of borrowing of 10 percent for the last quarter. So you would see a huge production in marginal cost of borrowing for Q4, banks to these transactions. 

On your second question, normally 30-35 percent of our total book outstanding at the end of the year would be securitised because our other exposure which qualify for this, add up to 35-40 percent of the total book.

Ekta: What is your current blended cost of funds?

A: The marginal cost of borrowing for the last quarter was 10 percent.

Ekta: Will that see further reduction in this quarter?

A: Yes. As I said thanks to these securitisation transactions which are done at 8.25 percent, you will see a substantial decrease in marginal cost of borrowing further from 10 percent.

Ekta: Would you be passing this on to your lenders, anyway you are one of the lowest in the microfinance space in terms of lending rates but would you look to reduce that further?

A: I think so far as this financial year or even the first quarter is concerned, we have made computation and we have passed on 4.8 percent in our interest rate.

As you would notice that 19.75 percent is unquestionably the lowest rate charged by any microfinance player in the world, not just alone in India and if you compare it with some of our peers, this rate is nearly 4 percent lower than what they are charging. Even some of the peers who are equal to us in size, charge at least 3-4 percent more than that. 

Nigel: You said that close to 30 percent of your total book you look to get securitised, so Rs 1,500 crore equates to how much?

A: If you look at the last quarter assets under management (AUM), it was Rs 6,177 crore. It is only 25 percent, but we can go up to 35 percent and expand book by end of Q4

Nigel: What is your total MAT credit currently?

A: We have about 76 crore of MAT credit.

Nigel: When do you look to put it back into your book?

A: As we have said in our analyst meeting also that the guidance note permits recognition of MAT credit. We have also done some benchmarking with very conservative players including someone like Infosys. MAT credit is availed by them and we have convincing evidence that we could use this. We are deliberating for another quarter and we will take a final call in availing MAT credit.

Ekta: Your profit guidance as of the previous quarter was around Rs 290 crore. You have done around Rs 218 crore for nine months. Are you on track to deliver at least around Rs 70 crore in terms of profits for Q4?

A: As I said up to three quarter if you have done Rs 218 crore and for the last quarter our profit was about around Rs 80 crore. It is clear that we are on our way to beat the guidance. 

Ekta: Possibly even surpass it?

A: That is a possibility.