The Rs 500 crore initial public offering (IPO) of Varanasi-based Utkarsh Small Finance was oversubscribed 16.2 times, with the retail portion being subscribed 36.66 times on Day 2.
The issue was oversubscribed 4.73 times on the first day of bidding, with all segments fully subscribed.
Utkarsh Small Finance has been on a solid growth path over the past four years with its loan book growing in excess of 30 percent between FY19 and FY23. This is higher than the growth posted by other small finance banks of similar size.
Last fiscal year, the company’s total income grew 37.9 percent to Rs 2,804 crore from Rs 2,033 crore in FY22. The bank’s net profit rose to Rs 404 crore from Rs 61.5 crore in FY22.
The Utkarsh Small Finance management expects the bank’s growth trajectory to continue in the future. “The combined effect of the revival of microfinance and the new verticals created over the past few years have started yielding positive results, contributing to further growth,” said MD and CEO Govind Singh.
cording to Singh, the bank will drive future growth by expanding the number of verticals. Some of the businesses, such as MSME, lab businesses, affordable housing, and small corporates, were initiated after the bank's launch in January 2017.
“Gradually, these verticals have become fully developed, with dedicated teams for credit, product, collection, and sales,” said Singh. “We have been in operation for 14 years. Some of our older verticals are witnessing a growth rate of only 15-20 percent. But growth in newer verticals is higher.”
While the bank’s growth is robust, a key concern for Utkarsh is its low CASA level of 20.8 percent. CASA, which refers to the pool of deposits in current and savings bank accounts, is a source of low-cost funds for banks. Singh said the bank is working on improving the CASA ratio. “This is a long-term effort, and the recent movement of funds from recurring deposits to fixed deposits over the last six months has led to slower-than-anticipated growth.
Although the CASA proportion is unlikely to change in a hurry, one blessing is that its main funding source, wholesale deposits, are non-callable deposits. Meaning, they will be stable rather than volatile.
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The other concern for the bank is its high concentration in two states: Bihar and Uttar Pradesh. But, that is usually the case with most traditional small finance banks. “These two geographies offer great prospects for financial inclusion and present immense lending opportunities. We will maintain our focus on these states while preserving the asset quality and overall portfolio quality,” said Singh.
Thus far, asset quality does not seem to be an issue. Utkarsh Small Finance’s gross NPAs stood at 3.23 percent and net NPAs stood at 0.39 percent. At the issue price, the company commands a price-to-book value ratio of 1.1 times compared to 2-4.6 times for rivals Equitas Small Finance Bank and AU Small Finance Bank.
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