Ujjivan Small Finance Bank is considering a demerger or issue of bonus shares of up to 60 percent to shareholders of its holding company Ujjivan Financial Services to meet the regulatory requirement for promoter shareholding.
The balance 40 percent holding will remain with the promoter till January 2022 as per Reserve Bank of India (RBI) licensing guideline.
Currently, the holding company owns 100 percent in the small finance bank, which started its operations in February 2017. RBI requires the bank to list its shares publicly diluting the promoter shareholding on the stock exchanges within three years of its commencement.
“We proposed a reverse merger of the holding company in the bank, which is the most practical way for us. This would not require to list the bank separately to meet the promoter shareholding norms. But RBI seems to disagree with that… If not, the reverse merger, plan B is we can give bonus shares of the bank to the shareholders of the holding company,” the bank’s founding CEO and Managing Director Samit Ghosh told Moneycontrol.
In a reverse merger, a private company (Ujjivan Small Finance Bank) in this case) acquires a public entity (Ujjivan Financial services) by owning the majority shares of the public entity.
Another entity -- Equitas Holdings too has been directed by RBI to list its banking unit separately and is exploring a similar option of offering 60 percent ownership of Equitas Small Finance Bank to its existing shareholders.
Broadly, this would help the bank pass on the majority of the bank’s shares to the shareholders of the holding company, which will then hold not more than 40 percent in the bank, which is the promoter shareholding requirement.
The other option, he added, is to list the bank separately before January 2020, “which is painful”.
The third option is the demerger of the two entities. “So either the holding company acquires something and then de-merge but that is a time-consuming process,” Ghosh said.
“We are looking at various options and will decide the final course of action by January so that we have one year to implement it,” Ghosh added.
He said the bank’s management had been in a very constructive discussion over the last two months with the central bank on the process of the reverse merger after three or five years.
“Unfortunately, RBI has asked to stick to the original term of the licensing agreement to list before January 2020 and reduce our promoter shareholding by January 2022. That (RBI response) was a bit of a surprise for us,” Ghosh said.
He reasoned that the purpose of the listing was that the bank shareholding should be widely held. “But our holding company is listed and practically the bank is also widely held. But technically, since the bank is not listed, RBI wants us to meet that norm.”
According to experts, after the frauds uncovered among the public sector banks earlier this year, RBI has become very stringent with its regulations.
On November 14, Ujjivan Small Finance Bank reported Rs 44 crore net profit for the September quarter FY19 against a net loss of Rs 12 crore in the year-ago period. Its total income grew 24 percent at Rs 467 crore on a loan book of Rs 8,317 crore, which rose 25 percent year-on-year.
Ghosh said the demonetisation trouble is over and the bank is on a growth path from here on.
The bank is looking to raise $50 million (about Rs 350 crore) of rupee-denominated tier-2 debt funds from International Finance Corporation (IFC) by March 2019.
This will help its capital adequacy ratio (CAR) to improve by 0.5 percent from the current 23.8 percent as on September end.
In terms of assets, we expect 30-35 percent growth from current Rs 8,000 crore to Rs 10,000 crore, Ghosh added.
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