Leading micro-lender SKS Microfinance today said it will reduce interest rates across States to 24 per cent, after the Andhra Pradesh State government came out with an Ordinance to control the micro lenders.
“In Andhra Pradesh, the company... shall take steps to further reduce it to effectively 24 per cent. The company is also planning to reduce interest rates in other States to effectively 24 per cent in due course,” SKS said in a filing to the Bombay Stock Exchange.
SKS said Andhra Pradesh currently accounts for 27 per cent of the company’s total portfolio, but added that it could not immediately quantify the potential impact of the ordinance.
Last month the company had reduced interest rates in Andhra Pradesh to the current level of 24.55 per cent, from over 26 per cent, after the State government on October 15 promulgated an Ordinance to control the MFIs.
Although SKS did not specify from when the new rates would be effective, it said profitability might be impacted as certain provisions of the ordinance required it to change its operation model.
“The proposed change in operating model, disruption in customer connectivity at the field level, the resultant reduction in collection in AP and interest reduction... are likely to have a material impact on the company’s revenues, profitability and asset quality of AP portfolio,” the company said.
The Ordinance was issued after a spate of suicides in Andhra Pradesh, which many alleged were due to high interest rates and coercive recovery methods adopted by the microfinance companies.
The ordinance now makes it mandatory for all MFIs to register with the district Registering Authority.
It also provides that Self Help Groups (SHG) should not be asked by MFIs for repayment of loans before at least a month, against the current practice of 15 days. The rule would also apply on existing borrowers. However, SKS says it may approach the State HC if this provision is not changed.
“In the event the issue of the repayment periodicity is not satisfactorily resolved, the company may be constrained to challenge the same in the Andhra Pradesh HC, if it is so advised,” the company added.
MFIs usually lend money to borrowers through women’s groups in remote areas. They charge interest rates as high as 34 per cent, mostly due to the cost of associated with administration of loans in remote areas.
SKS said it was in talks with the State government and key regulators such as the Reserve Bank of India and the Ministry of Finance to rectify aspects of the Andhra Pradesh government’s recent ordinance.
