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Mar 15, 2018 09:48 AM IST | Source:

Bandhan Bank IPO opens; 10 things you should know before investing

Out of total fund raising, the bank already raised Rs 1,342 crore by issuing 3,57,84,147 equity shares to 65 anchor investors at Rs 375 per share.

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Kolkata-based private sector lender Bandhan Bank has opened for subscription on Thursday, with a price band of Rs 370-375 per share.

Kotak Mahindra Capital Company, Axis Capital, Goldman Sachs (India) Securities, JM Financial and JP Morgan India are book running lead managers to the issue. Karvy Computershare is the registrar to the issue.

The equity shares are proposed to be listed on the BSE and the NSE.

Here are 10 key things you should know before subscribing to the issue:

Bank Profile

Bandhan Bank incorporated on December 23, 2014 and began operations on August 23, 2015 when Bandhan Financial Services Limited (BFSL), the parent company, transferred its entire microfinance business to Bandhan Bank.

Its strength lies in microfinance, including a network of 2,022 doorstep service centres (DSCs) and 6.77 million micro loan customers that BFSL transferred to Bandhan Bank, which it has grown to 2,633 DSCs and 9.86 million micro loan customers as of December 31, 2017.

To complement micro loan business, since obtaining the banking license it has also focused particularly on creating a strong general banking business. To this end, it launched general banking business on August 23, 2015 by opening a greenfield network of 501 bank branches and 50 automated teller machines (ATMs), which as of December 31, 2017 it has grown to 887 bank branches and 430 ATMs, together serving over 2.13 million general banking customers.

Bandhan Bank's distribution network is particularly strong in East and Northeast India, with West Bengal, Assam and Bihar together accounting for 56.37 percent and 57.58 percent of branches and DSCs as of December 31, 2017, respectively.

About the Issue

The bank has put on offer up to 11,92,80,494 equity shares, including fresh issue of up to 9,76,63,910 equity shares.

The IPO also consists of an offer for sale of up to 1,40,50,780 equity shares by IFC and up to 75,65,804 equity shares by IFC FIG.

Bids can be made for a minimum lot of 40 shares and in multiples of 40 shares thereafter.

The issue will close on March 19.

Amount to Raise from the Issue

The private sector lender is expected to raise Rs 4,413.4 crore - Rs 4,473 crore at lower and upper end of price band, respectively.

Out of Rs 4,473 crore, the fresh issue money would be Rs 3,662.4 crore or 82 percent of total issue size and the balance amount of Rs 810.62 crore would go to the two selling shareholders.

Out of total fund raising, the bank already raised Rs 1,342 crore by issuing 3,57,84,147 equity shares to 65 anchor investors at Rs 375 per share.

Objects of the Issue

The objects of the fresh issue are to augment bank's Tier-I capital base to meet its future capital requirements.

Further, the proceeds from the Issue will also be used towards meeting the expenses in relation to the issue.

The bank will not receive any proceeds from the offer for sale.


> As Bandhan Bank focuses specifically on serving underbanked and underpenetrated markets, 29.15 percent of its banking outlets were located in unbanked rural areas and 96.49 percent of gross advances were PSL compliant, each as of December 31, 2017.

> Consistent track record of growing a quality asset and liability franchise:

Since March 31, 2016, its gross advances (including IBPC/Assignment) have grown from Rs 15,578.44 crore to Rs 24,364.39 crore as of December 31, 2017, while customers have increased from 6.77 million to 11.99 million, respectively.

On the liability side, deposits have grown from zero as of August 23, 2015 to Rs 25,294 crore as of December 2017, with CASA ratio standing at 33.22 percent and retail-to-deposit ratio standing at 85.07 percent as of December 2017.

As of December 2017, percentage of gross NPAs to gross advances (excluding IBPC/Assignment) was 1.67 percent of portfolio and provision for NPA was Rs 202.17 crore and Rs 25.09 crore, respectively.

> To being extensive, its distribution network is relatively low cost, which in particular is a result of 'hub and spoke' model of using DSCs and associated bank branches, as well as focus on tech initiatives. This low-cost model is demonstrated by its operating cost-to-income ratio was 35.38 percent and 36.31 percent for the nine months ended December 2017 and for FY17, respectively.

> Its mission is to provide customers accessible, simple, cost-effective and innovative financial solutions in a courteous and responsible manner.

> Its management team has a strong track record and significant experience in the microfinance and banking industries.

> It has since the inception delivered consistent financial results for shareholders and are currently in a robust financial position.

Financials and Peer Comparison





The promoters of Bandhan Bank are Bandhan Financial Holdings (BFHL), Bandhan Financial Services (BFSL), Financial Inclusion Trust (FIT) and North East Financial Inclusion Trust (NEFIT).

Except for BFHL, none of its promoters hold any equity shares in the bank.

BFHL holds 98,14,83,046 equity shares, representing 89.62 percent of the issued and paid-up equity share capital of Bandhan Bank.


Top shareholders of the bank as of March 5, 2018:



Ashok Kumar Lahiri is the Independent Director (part-time Chairman) of the bank. He has significant experience in the banking sector. Previously, he has worked in the capacity of a Director at Asian Development Bank. He has been a director on the board since July 10, 2015.

Chandra Shekhar Ghosh is the Managing Director and Chief Executive Officer of the bank. He has significant experience in the finance and microfinance sector. He has been a director on the board since July 10, 2015.


Risks & Concerns

Here are some risks and concerns highlighted by several brokerage houses:

> High competition in the core banking segment;

> Limited historical track record and relatively very less experience in banking business;

> A substantial portion of operations are located in East and Northeast India (81 percent of total advances), making it vulnerable to risks associated with having geo-graphically concentrated operations;

> Bank's business is vulnerable to interest rate and investment related risks;

> Any unfavorable change in Government policies can largely affect its scale of operations;

> Microcredit lending has its own unique risks and, as a result, Bandhan may experience increased levels of non-performing loans and related provisions and write-offs that negatively impact the results of operations;

> The micro finance loan portfolio is not supported by any collateral that could help ensure repayment of the loan, and in the event of non-payment by a borrower of one of these loans, Bandhan may be unable to collect the unpaid balance;

> The bank believes that any damage to its brand 'Bandhan' or its reputation could substantially impair its ability to maintain or grow its business, or have a material adverse effect on its overall business, financial condition, results of operations and cash flows.
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