Utkarsh Small Finance Bank Ltd is planning to raise Rs100-150 crore from its existing investors by selling 10-15% stake, a top bank official said.
Varanasi-based Utkarsh SFB’s existing investors include Aavishkar Goodwell, an MFI (microfinance institution)-focused private equity firm; Lok Capital, a venture capital fund; Norwegian Microfinance Institution, a partnership between the Norwegian public and private sectors that invests in microfinance institutions in developing countries and provides professional assistance and technical support; and CDC Group, a UK-based development finance institution.
RBL Bank Ltd holds about 10% stake, but it cannot increase its stake without approval from the Reserve Bank of India (RBI).
“We are well-capitalized. To grow our books, however, we will require more funds. Hence, we will be reaching out to our existing set of investors to raise about Rs100-150 crore this year,” Govind Singh, managing director and chief executive of Utkarsh SFB said over the phone.
Utkarsh, which was an MFI, received final approval to become a small finance bank (SFB) in November 2016.
In September 2016, Utkarsh SFB had raised Rs395 crore from domestic institutional investors in an effort to lower the foreign holding in the company to below 49% and comply with RBI guidelines on foreign shareholding in SFBs. Capital adequacy of Utkarsh SFB is 24% as against 15% mandated by the RBI.
International Finance Corporation, the investment arm of the World Bank, sold 4.9% stake in Utkarsh SFB to Switzerland-based responsAbility Investments AG in August, making a partial exit, Singh said. He did not reveal the deal valuation.
Utkarsh, which started building deposits in July, has so far garnered around Rs450 crore, Singh said. “Our focus is to build our liabilities right now. We expect the deposits to be around Rs2,000 crore by end of this fiscal,” he added.
In its earlier form as an MFI, Utkarsh could lend but not take deposits. So, as a bank, it has to build its deposits from scratch. For this, it will tap its existing 1.2 million MFI customers and their neighbourhoods, customers with other banks, and seek wholesale deposits, Singh said.
“The wholesale book will have a higher share in the deposits in the beginning,” he added. Utkarsh currently has a loan book of Rs2,000 crore, which Singh expects will touch Rs3,000 crore by the end of the financial year, both through MFI and non-MFI segments. It has added 35 branches this fiscal and is expecting a network of 425 branches by the end of the financial year.
Utkarsh also expects to get scheduled commercial bank status in October this year, Singh said, adding that it will consider applying for a universal bank licence in the next 3-5 years once it has established itself as a bank.
“Going forward, we will aim to become a universal bank as it will give us more flexibility to operate and better serve our customers,” Singh said.
He added that the SFB will also look to grow inorganically and will be open to making acquisitions in the near future.
Utkarsh SFB will gradually reduce its MFI portfolio which currently constitutes 93% of its business. “Over the next 3-5 years, share of microfinance portfolio will come below two-thirds and the rest will be from other segments,” Singh said.
Even as demonetization led to an increase in gross non-performing assets, the SFB is well on its way to recovery. Its gross non-performing assets ratio jumped to 10% of the loan book from 0.25% in the pre-demonetization period, said Singh. “The situation, however, has improved. Recoveries for new loans since January has been 98% to 100%,” he said.
On being asked about its relationship with RBL Bank, Singh said that RBL as investor is assisting Utkarsh SFB to establish itself as bank and advises it on the dos and don’ts.
According to analysts, investors are bullish on SFBs. “There is a lot of investor interest in Indian financial sector firms, especially those that are catering to the retail segment,” said Harish H.V., partner at Grant Thornton LLP, a consultancy firm.
He further said that a small finance bank with a regional stronghold will be attractive from the investors’ standpoint, business cannibalization will not be easy and there is a large growth potential for the SFBs to grow in the rural and under served markets.
Source: Mint