SKS fails to get Small Bank license

SKS Microfinance Limited was founded in 1997 by Vikram Akula.

It started off as a "non-banking finance company (NBFC)" which was managed by the RBI.

SKS aimed to render financial services to the impoverished under the proposition that "providing financial services to poor borrowers helps to alleviate poverty".

The organization set up agencies across 19 of the 28 Indian states.

On 28 July 2010, SKS Microfinance made its BSE debut.

It aimed to "raise up to $354 million in an initial public offering".

This move on SKS' part was considered 'irreconcilable'.

Market experts argued that the job of an IPO was to make money for its shareholders while that of a microfinancing unit is to provide small loans (under $200 which banks won't lend).

According to media reports compiled by Andhra Pradesh's government, over 200 poor, debt-ridden people committed suicide in late 2010.

The blame was put on microfinance companies that encouraged 'over-indebtedness' including SKS microfinance.

The company denied any such involvement; however, a private inquiry "linked SKS employees to at least seven of the deaths".

Another study implicated the company for 2 more of these suicides.

SKS Microfinance managing director M R Rao made public the company's decision to lay off 1200 of its employees in Andhra Pradesh.

He further declared that SKS was going to shut 78 of its branches in the state.

The company incurring losses of Rs.1,360 crore during the 2012 fiscal year due to the microfinancing situation in the state was seen as the prime-reason.

SKS Microfinance failed to secure the license for operating Small Bank from the Reserve Bank of India.

Following the news its shares fell as much as 20 percent.

With this opportunity lost for SKS, it stands to lose "its premium valuation" and calls for definitive strategy rethinking.

Religare Institutional Research believed that SKS missed the license due to the 2010 Andhra Pradesh crisis.