Equitas SFB IPO subscribed 67% on Day 2

Equitas Small Finance Bank (ESFB) was originally incorporated as ‘V.A.P. Finance Private Limited’ on June 21, 1993. The bank promoter, Equitas Holdings (EHL), was granted RBI's final approval on June 30, 2016, to establish a small finance bank (SFB). Subsequently, the bank was converted into an SFB and they commenced operations on September 5, 2016. The bank has sought in-principle approval from the RBI to undertake a merger of EHL with the bank such that the merger would be effective from September 4, 2021. It has also sought principle approval from the RBI to permit the dilution of EHL’s shareholding in the bank pursuant to such merger.

The company has fixed the price band for its over Rs 500 crore initial public offering (IPO) at Rs 32-33 per equity share. The IPO consists of a fresh issue aggregating up to Rs 280 crore and an offer for sale of up to 7.2 crore equity shares by Equitas Holdings, the holding company of the bank. The offer opens on October 20 and closes on October 22. Post this offer, Equitas Holdings share in the bank will come down to 82-83 per cent from 95.49 per cent.

The bank's Managing Director and CEO P N Vasudevan said, "We will be using the funds raised as growth capital. We are adequately capitalised as of now and this adds to our capital ratio which supports our growth going forward." At present, the bank's capital adequacy ratio is around 21 per cent and post the issue it will improve to 22 per cent, he told PTI.

The bank had earlier planned to raise Rs 1,000 crore through IPO but later reduced the size due to comfortable capital adequacy ratio and also on account of the present market conditions, Vasudevan said.

ESFB has the largest network of banking outlets among all SFBs in India. As of June 30, 2020, the bank's distribution channels comprised 856 banking outlets and 322 ATMs across 17 states and union territories in India. It also distributes products through digital channels and leverages technology to identify the target customer segment. To this end, the company has introduced facial recognition features for transaction authentication in their mobile banking application.

The bank said it experienced a significant decline in collections as a major proportion of its collections is cash-based and involves physical presence of their employees. There has been and there may continue to be a decline in disbursements due to reduced economic activity. Related revenue from processing fees and documentation charges have and may continue to decline. There may be a significant increase in the NPA levels due to possible deterioration in the credit quality of its customers, it said.

The gross advances of the SFB have grown to Rs 15,572.91 crore as of June 30 from Rs 15,366.94 crore as of March 31, 2020 and Rs 11,702.85 crore as of March 31, 2019. Secured advances constituted 75.75 per cent as of June 30 compared with 75.39 per cent as of March 31 and 70.72 per cent as of March 31, 2019.

Deposit for the bank rose at a compounded annual growth rate of 38.75 per cent to Rs 10,788.41 crore in FY20 from Rs 5,603.97 crore in FY18. As of June 30, the CASA ratio and retail deposits to total deposits ratio were at 19.97 per cent and 37.13 per cent, respectively.

(Text Source: Axis Securities)