Utkarsh Small Finance Bank’s IPO is scheduled to open on Wednesday 12th July and will remain open for subscription until Friday 14th July ₹500 crores. After the issue, the share held by the promoter and the promoter group in the company will drop from the current 84.75% to 68.28%.
The price range for the offer has been set to ₹23-25 per share, with a par value of ₹10 each. The net offering is reserved for qualified institutional buyers at 75% of the total offering size, non-institutional investors at 15% and retail investors at 10%.
Retail investors have the opportunity to bid for up to 13 lots, each lot containing 600 shares. In the upper range of the IPO price, private investors must make a minimum investment of ₹15,000 per lot.
Ahead of the IPO, the company’s shares are trading at a healthy premium on the gray market ₹14
Let’s take a look at the issuance’s operations, expansion plans and objectives, as well as an overview of its current financial position.
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Business Overview
Utkarsh Small Finance Bank had the second fastest AUM growth among SFBs between FY2019 and FY2022 with an AUM of more than ₹50 billion, according to the company’s DRHP report.
The bank’s journey began when its sponsor, Utkarsh CoreInvest Limited, entered the financial sector as a Non-Banking Financial Company (NBFC) in FY2010. Initially focused on providing microfinance services to underserved segments, particularly in Uttar Pradesh and Bihar, Utkarsh CoreInvest Limited received the coveted RBI approval in principle to establish a SFB on 7th October 2015. This resulted in the formation of Utkarsh Small Finance Bank Limited as a wholly owned subsidiary on 30 April 2016.
After receiving the RBI license on November 25, 2016, Utkarsh CoreInvest Limited transferred its microfinance business to Utkarsh Small Finance Bank which started operations on January 23, 2017. Since then, the bank has expanded its footprint across India and has 686 bank branches and a dedicated workforce of 12,617 employees as of March 31, 2022.
Notably, 27.70% of bank branches are located in Unbanked Rural Centers (URCs), which exceeds the regulatory requirements for SFBs. As of March 31, 2022, the bank served a customer base of 3.14 million, which included both deposit and lending customers.
The majority of these customers are located in rural and semi-urban areas, primarily in the states of Bihar, Uttar Pradesh and Jharkhand. According to the bank, these regions are primarily characterized by excellent asset quality and low to moderate credit penetration.
These states represented 34.27%, 26.53% and 7.10% of the Bank’s total gross loan portfolio as of March 31, 2022 (based on Bank branch location).
product portfolio
The Bank offers a range of financial products and services tailored to the specific needs of our client segments. “Our product portfolio includes asset products, which we pass on to customers primarily located in unbanked and underbanked areas, as well as liability products in the form of deposits, which we draw from customers across geographies,” the bank said in its DRHP report.
Banking asset products include microbank lending, which includes group lending with joint liability and individual lending; Personal loans, which includes unsecured loans such as business loans and personal loans, and secured loans such as real estate loans (“LAP”).
In addition, the bank offers wholesale loans to SMEs, medium-sized and large companies and institutional customers. In addition, housing construction loans with a special focus on affordable housing as well as commercial vehicle and construction machine loans are offered. In FY2022, Utkarsh Small Finance Bank successfully launched gold loans, further diversifying its wealth product range.
On the liabilities side, the bank offers a wide range of deposit accounts, including savings accounts, checking accounts, and various term and standing deposit accounts.
Strong deposit growth
Over the years, the bank has seen significant growth in its total deposits, from ₹7,507 crore as of March 31, 2021, up ₹10,074.18 crore as of 31 March 2022 and counting ₹13,710 crore as of March 31, 2023.
In addition, the number of deposit-only customers has also increased significantly, reaching 0.65 million as of March 31, 2022, compared to 0.23 million in 2020.
Steady increase in the loan portfolio
The bank’s gross loan portfolio has seen steady growth, expanding from ₹8,415 crore in FY21 to ₹10,630.73 crore in FY22, and for FY23 the loan portfolio was ₹13,957.11 crores
The microbank portfolio accounted for a significant proportion, accounting for 81.98%, 75.28% and 66.03% of the total gross loan portfolio as of March 31, 2021, 2022 and 2023, respectively.
In-depth knowledge of the microfinance segment and presence in rural and semi-urban areas
The bank’s promoter, Utkarsh CoreInvest Limited, has a history of serving microfinance clients, with a focus on financial inclusion for unserved and underserved client segments in rural and semi-urban areas.
Based on rural bank credit accounts, Himachal Pradesh, Odisha, Jharkhand and Bihar (as of March 31, 2022) have more than 45% of rural credit accounts. In addition, Bihar, Uttar Pradesh and Jharkhand have the best asset quality differs from other countries and the risk of a portfolio is more than 30 days and the risk of a portfolio is more than 90 days lower than the all-India level.
There is tremendous potential for growth in these underserved regions as they are not yet fully exploited and the Bank believes that its understanding of the rural and semi-urban customer segments in these regions, coupled with its significant presence in these areas, allows the Bank to to address the financing needs of potential customers.
Other Products and Services
The bank offers a variety of third-party products, including the distribution of life insurance, health, auto, accident and other general insurance products, and mutual fund programs. money transfer services (domestic wire transfers); an integrated bill payment system; and distribution and facilitation of accounts under certain government programs.
expansion plans
Given Utkarsh CoreInvest Limited’s heritage as a non-bank finance company and microfinance institution, microfinance remains a focused business segment for the bank. However, the bank has expanded its product portfolio to include non-microbank lending, reducing exposure to our microfinance business and expanding our portfolio of secured lending.
Destinations of the output
The Company proposes to use the net proceeds from the re-issuance to fully increase its Tier 1 capital base to meet its future capital needs.
finance
Net Interest Income (NII), which is the difference between the interest earned on lending and the interest paid to depositors, is an important metric for measuring a bank’s financial health.
The bank has shown continuous NII growth over the years. In FY21 the NII was attached ₹839.25 crore, which increased to ₹1,060.85 crore in FY22 and kept growing ₹1,529.03 crore in FY23. While the bank’s net interest margin (NIM) increased to 9.57% in FY23 compared to 8.75% in FY22.
In addition, the bank reported a net profit of ₹404.5 crore for the fiscal year ended March 31, 2023, an impressive 558% increase over the net profit for fiscal year 22 of 2023 ₹61.46 crores.
asset quality
The bank’s gross non-performing assets (NPAs) as a percentage of gross loans were 3.75%, 6.10% and 3.23% for FY21, FY22 and FY23, respectively. In terms of net NPAs as a percentage of net advances, they were 1.33%, 2.31% and 0.39% for the same periods.
Disclaimer: The views and recommendations expressed above are provided by individual analysts or brokerage firms and not by MintGenie.
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