MUMBAI: Shares of India's biggest microlender, SKS Microfinance, tumbled for a second trading day on Monday, losing a fifth of their value, hit by a hefty quarterly loss and analyst downgrades.
India's only listed microfinance firm's shares slid more than 19 percent or nearly 64 rupees ($1.43) to a new record low of 268.05 rupees on the Bombay Stock Exchange (BSE) after tumbling 20 percent last Friday.
The slide came after the lender reported late Friday it had swung to a fiscal fourth-quarter loss of 697.7 million rupees ($16 million) from a profit of 628.9 million rupees in the same period last year.
"SKS will have to give up its thought of conquering the world," said Sanjay Sinha, managing director of Micro-credit Ratings International (M-cril), a ratings firm.
SKS has been in trouble since the Andhra Pradesh government accused microfinance lenders of exploiting poor borrowers and introduced a new law mandating greater transparency and tightening lending practices.
SKS bosses warned last year that the restrictions could hit its activities hard. The company does more than a quarter of its business in Andhra Pradesh.
Investors are now unsure about the growth prospects not only of SKS but other microfinanciers.
SKS, based in the capital of Andhra Pradesh state, Hyderabad, is among only a handful of microfinance firms to be listed in the world, and has seven million borrowers in 19 Indian states.
But the sector has seen a backlash over alleged abusive practices by debt collectors and exorbitant rates of interest equivalent to the loansharks they vowed to put out of business.
SKS's shares now are trading far below the 1,159 rupees listing price when it floated last August, drawing interest from billionaire investor George Soros and N.R. Narayana Murthy, founder of Indian outsourcing giant Infosys.
Credit Suisse India on Monday downgraded the stock to "underperform" from "outperform", citing "medium-term pain and continued uncertainty" about the microfinance business model.
JP Morgan analysts forecast on Friday that SKS could post "a large loss of seven billion rupees ($157 million) in the fiscal year ending March 2012".
Concern about the sector's financial health has led commercial banks to withhold funding from some microlenders.
The Reserve Bank of India last week reaffirmed priority lending status for microfinance and set the interest rate cap at 26 percent on microloans, two percentage points higher than urged by a panel, to boost the ailing sector.
JP Morgan said the central bank's new rules were less burdensome than the panel's proposals but could still end up "stifling growth" in the industry.
"The risks to business increase due to the inherent nature of the business of unsecured lending (to self-help groups)," Pramod Gubbi, vice-president at Mumbai's Ambit Capital, said.
M-cril's Sinha said the industry "will survive but will limp along for a couple of years".
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