Utkarsh Small Finance Bank IPO opens today: 10 things to know before buying the issue

Utkarsh Small Finance Bank is all set to float its maiden public issue today. It would be the second initial public offering to be launched this month after Senco Gold. Varanasi-based Utkarsh Small Finance Bank has mopped up Rs 222.75 crore from 20 anchor investors. The company in its filing to exchanges said it has finalised the allocation of 8.91 crore equity shares to anchor investors, at an upper price band of Rs 25 per share.

Let's check out 10 key points before subscribing to the offer:

1) IPO Dates

The public issue will open on July 12 and bidding will close on July 14. The anchor book, the part of qualified institutional buyers, was opened on July 11.

2) Price Band

The small finance bank has set the price band for its issue at Rs 23-25 per share.

3) Issue Size

The bank plans to raise Rs 500 crore from its offering that comprises only fresh issue portion.

Also Read | Utkarsh Small Finance Bank raises Rs 222.75 crore via anchor book ahead of IPO

4) Objectives of Issue

Utkarsh Small Finance Bank will utilise net issue proceeds for augmenting its Tier - 1 capital base to meet its future capital requirements, besides issue expenses.

5) Lot Size

Investors can bid for a minimum of 600 equity shares and in multiples of 600 shares thereafter. Hence, the minimum investment by retail investors in the public issue would be Rs 15,000 for one lot and the maximum investment would be Rs 1.95 lakh for 13 lots.

High networth individuals (non-institutional investors) with a capital in the range of Rs 2-10 lakh will make a minimum investment of Rs 2.1 lakh for 14 lots and their maximum investment would be Rs 9.9 lakh for 66 lots, while high networth individuals with minimum capital of Rs 10 lakh can invest a minimum Rs 10.05 lakh for 67 lots.

Up to 75 percent of the issue size is reserved for qualified institutional buyers, 15 percent for high networth individuals, and the balance 10 percent for retail investors.

6) Bank Profile

Utkarsh Small Finance Bank recorded the third fastest gross loan portfolio growth between FY19 and FY23 among SFBs at above Rs 6,000 crore, as per CRISIL report.

Promoter Utkarsh CoreInvest commenced its operations as a NBFC in FY10, with a focus on microfinance business, providing support to unserved and underserved segments in Uttar Pradesh and Bihar.

Also Read | Utkarsh Small Finance Bank raises Rs 222.75 crore via anchor book ahead of IPO

In October 2015, Utkarsh CoreInvest received the RBI in-principle approval to set up a small finance bank and after the same later incorporated Utkarsh Small Finance Bank as a wholly owned subsidiary in April 2016. After the obtaining RBI licence in November 2016, Utkarsh CoreInvest transferred its microfinance business to Utkarsh Small Finance Bank.

The small finance bank commenced its operations in January 2017, with operations across 26 states and Union territories through 830 banking outlets and 15,424 employees, as of March 2023.

By the end of FY23, it had 3.59 million customers (both deposit and credit) majorly located in rural and semi-urban areas in Bihar and Uttar Pradesh which constituted 30.88 percent and 25.98 percent to its total gross loan portfolio.

For expansion in newer geographies, the bank entered into arrangements with 13 business correspondents (BCs) and 321 direct selling agents (DSAs).

7) Promoters

Utkarsh CoreInvest, formerly known as Utkarsh Micro Finance, is the only promoter of small finance bank, holding 84.75 percent stake, while the rest of shareholding is held by public shareholders - Olympus ACF Pte Limited, Bharti AXA Life Insurance Company, Triodos Sicav II - Triodos Microfinance Fund, responsability Participations Mauritius, Aavishkaar Bharat Fund, and Growth Catalyst Partners LLC.

Govind Singh, with over 25 years of experience in the banking and financial services sector, is the managing director and chief executive officer of the small finance bank, while Parveen Kumar Gupta as the part-time non-executive chairman and independent director on the board.

Muthiah Ganapathy is the Company Secretary and Compliance Officer of the bank, while Sarjukumar Pravin Simaria is the chief financial officer.

Its promoter Utkarsh CoreInvest is backed by institutional investors such as British International Investment Plc, RBL Bank, International Finance Corporation, NMI Frontier Fund KS, Lok Capital Growth Fund, SIDBI, HDFC Life Insurance Company, HDFC Ergo General Insurance Company, ICICI Prudential Life Insurance Company, Faering Capital India Evolving Fund, Hero Enterprises Partner Ventures, responsAbility Participations Mauritius, Shriram Life Insurance Company and Aavishkaar Bharat Fund.

8) Financials

Utkarsh Small Finance Bank has reported healthy financials with deposits in FY23 growing 36 percent to Rs 13,710 crore compared to the previous year, disbursements increasing 37.5 percent to Rs 12,443 crore and gross loan portfolio rising 31.3 percent to Rs 13,957 crore in the same period.

Its retail term deposits comprised 40.66 percent to total deposits in FY23, increasing from 37.28 percent in FY22, while CASA as a percentage of overall deposits was 20.89 percent against 22.37 percent in same period.

Profit for the financial year ended March FY23 surged significantly by 558 percent to Rs 404.5 crore compared to previous year, with fall in provisions and contingencies and healthy net interest income. The net interest income spiked 44 percent year-on-year to Rs 1,529 crore in FY23, with net interest margin expanding to 9.57 percent from 8.75 percent.

Asset quality also improved with the gross non-performing assets as a percentage of gross advances declining to 3.23 percent in FY23, from 6.1 percent and net NPA, too, dropped to 0.39 percent from 2.31 percent in the same period.

9) Risks and Concerns

Here are key risks and concerns highlighted by Reliance Securities:

a) The company is subject to inspections by regulatory authorities, including the RBI.

b) Significant portion of advances in the microbanking segment are towards customers located in Bihar and UP.

c) The bank is largely dependent on key managerial personnel and senior management.

d) Its deposits are depend on a limited number of customers.

e) Weakness or failures of internal control systems can impact the business

f) Insurance coverage may be inadequate to cover claims

10) Listing and Allotment Dates

The finalisation of basis of allotment of IPO shares is going to take place by July 19 and the successful investors will get shares in their demat accounts by July 21. The refunds will be credited to bank accounts of unsuccessful investors by July 20.

Utkarsh Small Finance Bank, which will make its grand debut on the BSE and NSE on July 24 as per the IPO schedule in draft prospectus, is available at more than 50 percent premium in the grey market, analysts said on anonymity. The grey market is an unofficial market where IPO shares can be bought and sold till the listing.

ICICI Securities and Kotak Mahindra Capital Company are the book running lead managers to the issue, while KFin Technologies is the registrar to the offer.

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