Fincare SFB postpones IPO, cites external factors

The hit taken by the bank on account of the COVID-19 pandemic and high volatility in the equity market arising from the Russia-Ukraine conflict have forced Fincare Small Finance Bank (SFB) to defer plans to list by July-August, the bank’s managing director and CEO Rajeev Yadav told Moneycontrol in an interaction on March 14. Yadav said the bank now aims to go public “at the earliest possible opportunity” in FY23.

“We have all the regulatory approvals but the timing is largely driven by COVID and its impact on the bank and, therefore, this needs to settle down before we can go public. Obviously, global issues are also a factor at this point of time, but I am hoping that this impact will not last long. Since we have worked through the process of an IPO (initial public offering), we are just making sure that an appropriate window arrives for us to go public,” he said.

In May, the SFB had filed the draft red herring prospectus (DRHP) with regulator Securities and Exchange Board of India (SEBI) to raise funds via an IPO. It is looking to raise Rs 1,330 crore through the offer which comprises a fresh issue of Rs 330 crore bank and an offer for sale of Rs 1,000 crore by promoter Fincare Business Services.

As per the Reserve Bank of India’s (RBI) guidelines for ‘on tap’ licensing of SFBs in the private sector, an SFB has to be listed within three years of achieving a net worth of Rs 500 crore. Fincare SFB started operations on July 21, 2017, and as on March 31, 2021, had a total gross loan portfolio of Rs 6,072 crore and deposits amounting to Rs 5,318 crore.

“The timeframes are there from a regulatory perspective (for listing of shares), which we have to work with the regulator and see what is the support or forbearance that we can get because COVID has been a very abnormal event,” Yadav said.

Once the bank is listed, the promoter stake will come down by 10-25 percent depending on the dilution methodology, Yadav said. Presently, Fincare Business Services holds 78.4 percent in the small finance bank, he said.

Yadav added that the SFB was keen on applying to the RBI for a reverse merger application but whether this will happen before or after the IPO is yet to be decided. There are seven SFBs that have a promoter structure presently, Yadav said, and most of them would want their promoter company to merge with the bank because it is just a holding company of the bank promoters’ shares and “not really serving any purpose at this point in time”.

“The RBI has come up with facilitating guidelines of seeking the application around the five-year band and they then will work through the process. If everything is fine, they will give an NoC (no-objection certificate). Two listed SFBs have already applied… We are short of completing the five-year period, we will do that in July, and then we will be eligible for this process,” he said.

Yadav said that in FY23, the bank’s thrust areas where it sees the highest growth are going to be mortgages and gold loans.  The bank will also start offering two-wheeler loans in partnership with dealers and tie-up with a fintech for supply chain financing, apart from launching a composite set of services called community banking for microfinance customers.

“We are also going to launch wealth solutions hopefully in a month’s time where we offer services including trading, demat and our own bank account. We are in the process of tying up with other specialised wealth management players,” he said.

Several payments banks have been eyeing a small finance bank licence and when asked if this would post a competitive challenge to Fincare SFB’s growth plans, Yadav said the Indian credit market is over Rs 130 lakh crore and players with Rs 5,000 crore or Rs 10,000 crore of balance sheets do not make a significant impact. “I do not think there is a question of overcrowding. Everybody is working in this space by a specific mix of what their core strengths are,” Yadav said.