About Equitas Small Finance Bank.
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Equitas Small Finance Bank is the largest SFB in India in terms of number of banking outlets, and the second-largest SFB in India in terms of Asset under Management. The asset products include small business loans, housing loans, and agriculture loans, vehicle loan, MSE loan etc. The focus customer segments include individuals with limited access to formal financing channels on account of their informal, variable and cash-based income profile. It offers a range of financial products and services that address the specific requirements of these customer segments by taking into account their income profile, nature of business and type of security available.
SECTOR OUTLOOK
1. SFBs have grown at a CAGR of 26% from Fiscal 2016 to Fiscal 2019, in terms of assets under management (AUM). These Top three SFBs accounted for 64% of the total SFB AUM in Fiscal 2019, compared to 53% in Fiscal 2016. These top three SFBs recorded a
CAGR of 34% from Fiscal 2016 to Fiscal 2019.
2. Further, it is expected that the loan portfolio of SFBs will grow at a CAGR of approximately 25% in the near term due to support from
- (i) significant market opportunities in the rural segment;
- (ii) new product offerings and cross-selling opportunities with the ability to cross-sell products on the liability side and asset side to improve customer stickiness and loyalty;
- (iii) higher presence of informal credit channels;
- (iv) geographic diversification;
- (v) ability to manage local stakeholders,
- (vi) access to low-cost funds, and
- (vii) loan recovery and control on NPAs.
3. In the last three years, SFBs have shifted their focus from microfinance to other products, but the core customer focus is not likely to change owing to regulatory norms. Going forward, SFBs will have to focus on small-ticket size lending to financially underserved and unserved segments (loans below Rs 2.5 million have to form at least 50% of loan book)
4. SFBs have a sizeable growth opportunity as most of them were previously functioning as NBFCs/MFIs. In the last one year, all SFBs have focused on increasing their deposit base immediately after commencement of their operations. Overall deposit base of SFBs has grown by 109% to around Rs 555 billion in Fiscal 2019. However, the CASA deposit reduced from 24% in Fiscal 2018 to 20% in Fiscal 2019.
GROSS ADVANCES BREAKUP- FY20
INTEREST SPREAD
SMALL FINANCE BANKS
Small Finance Banks (SFB) was created pursuant to the announcement in Union Budget 2014-2015. SFB is a private financial institution intended to further the objective of financial inclusion by primarily carrying out basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.
| Category | Small Finance Bank | Commercial Bank |
|---|
Target
Customers | Small businesses, small farmers,
unorganized workers and MSMEs. | Diversified customer base. |
LOAN
SERVICES | 75% of total lending has to be to the priority sector.
50% of loan book to constitute loans of ticket size up to ₹25 lakh
(can be relaxed by RBI) | No such restrictions. |
| CAPITAL- REQUIREMENT | The minimum capital for SFBs is prescribed at ₹100 crore.
The capital adequacy ratio requirement is of 15% of Risk-Weighted Assets. | The minimum capital for commercial banks is prescribed at ₹500 crore.
The capital adequacy ratio requirement is lower. |
| BRANCHES | 25% of all new branches opened in a year should be in unbanked rural centres
(population < 10,000). | No such requirement. |
INDUSTRY COMPOSITION
Top 3 Players accounts for 64% of the market (based on AUM).
PROMOTER BACKGROUND AND SHAREHOLDING
Equitas Small Finance Bank was originally incorporated as ‘V.A.P. Finance Private Limited’ on June 21, 1993. The Promoter, Equitas Holdings Limited (“EHL”) was granted the RBI Final Approval on June 30, 2016, to establish an SFB. Subsequently, it was converted into an SFB and they commenced operations on September 5, 2016, as an SFB.
As per the guidelines of RBI, the initial shareholding of the promoter in an SFB should be brought down to 40% within the first 5 years and should be further bought down to 30% within 10 years and further to 26% within 12 years from the commencement of operations. It requires a mandatory listing of SFBs within three years of reaching a net worth of ₹500 crore.
Arun Ramanathan is the part-time Chairman and NonExecutive Independent Director of the bank. Vasudevan Pathangi Narasimhan is the MD and CEO of the bank.
| SHAREHOLDINGS | PRE- IPO | POST- IPO |
|---|
| Promoters | 95.49% | 82.05% |
| Public | 4.51% | 17.95% |
| TOTAL | 100% | 100% |
| CATAGORY | Share in Issue (₹ crore) | % of Issue |
|---|
| QIB | 229-233 | 50% |
| NIB | 69-70 | 15% |
| RETAIL | 160-163 | 35% |
| Employee | 1-1 | - |
| EHL Shareholder Reservation | 51-51 | - |
| TOTAL | 510-518 | 100% |
IPO DETAILS
Promoted by Equitas Holdings Limited, Equitas Small Finance Bank (originally founded as a microfinance lender) is a professionally managed bank with an understanding of the unserved and underserved customer segments. The industry is at a nascent stage with a high growth opportunity in the upcoming years. Due to Covid 19, there is a likelihood of deterioration of the credit quality of its customers which might affect the NPA levels adversely. Nevertheless, the opportunity that the business provides shall reward long term investors.
ISSUE SIZE
Equitas Small Finance Bank IPO Details
| IPO Date | Oct 20, 2020 - Oct 22, 2020 |
| Issue Type | Book Built Issue IPO |
| Issue Size | [.] Eq Shares of ₹10
(aggregating up to ₹517.60 Cr) |
| Fresh Issue | [.] Eq Shares of ₹10
(aggregating up to ₹280.00 Cr) |
| Offer for Sale | 72,000,000 Eq Shares of ₹10
(aggregating up to ₹237.60 Cr) |
| Face Value | ₹10 per equity share |
| IPO Price | ₹32 to ₹33 per equity share |
| Retail Discount | ₹0 |
| Employee Discount | ₹0 |
| Market Lot | 450 Shares |
| Min Order Quantity | 450 Shares |
| Listing At | BSE, NSE |
Equitas Small Finance Bank IPO Tentative Date / Timetable
| Bid/Offer Opens On | Oct 20, 2020 |
| Bid/Offer Closes On | Oct 22, 2020 |
| Finalisation of Basis of Allotment | Oct 27, 2020 |
| Initiation of Refunds | Oct 28, 2020 |
| Credit of Shares to Demat Acct | Oct 29, 2020 |
| IPO Shares Listing Date | Nov 2, 2020 |
Equitas Small Finance Bank IPO Lot Size and Price (Retail)
| Application | Lots | Shares | Amount (Cut-off) |
|---|
| Minimum | 1 | 450 | ₹14,850 |
| Maximum | 13 | 5850 | ₹193,050 |
Company Financials:
Summary of financial Information (Restated)
| Particulars | For the year/period ended (₹ in Million) |
|---|
| | 30-Jun-20 | 31-Mar-20 | 31-Mar-19 | 31-Mar-18 |
| Total Assets | 208,921.39 | 193,145.47 | 157,626.91 | 133,011.50 |
| Total Revenue | 7,509.68 | 29,277.95 | 23,948.32 | 17,729.03 |
| Profit After Tax | 576.71 | 2,436.35 | 2,105.66 | 318.31
|
LISTED PEERS
RISK FACTORS
• SFB model is relatively new to India and such operations pose various business and financial challenges. These include sourcing deposits from the public at large at competitive prices to support the loan portfolio build-up, operationalization of banking outlets, diversifying loan portfolio and other operations to source and deliver cost-effective financial services to customers. The efficiency of senior management shall be vital in designing and developing a comprehensive enterprise-wide risk
management framework.
• SFBs may face stiff competition from the public sector and private sector banks as these banks benefit from greater trust among the customers in the rural region. Cost of accepting deposits may be high in the initial years of operation due to high-interest
rate offerings in order to attract the customers. Further, the average deposit per customer in the rural region is low.
• A significant portion of the advances are towards customers located in the state of Tamil Nadu and any adverse changes in the conditions affecting the region can adversely impact the business, financial condition, results of operations and cash flows. As of March 31, 2020, and June 30, 2020, advances towards customers in Tamil Nadu represented 54.26% and 54.31%, respectively, of the Gross Advances.
• As of March 31, 2020, and June 30, 2020, the Gross NPAs were ₹417.32 crore and ₹416.6.65 crore respectively, representing 2.72% and 2.68% respectively, of Gross Advances (including IBPC issued), while Net NPAs were ₹228.62 crore and ₹213.37 crore respectively, representing 1.66% and 1.48% respectively, of its net Advances as of such dates.
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