scorecardresearchUtkarsh SFB IPO opens today: All you need to know about GMP, Price band,
The bank has expanded its footprint across India, boasting 686 Banking Outlets and a dedicated workforce of 12,617 employees as of March 31, 2022.

Utkarsh SFB IPO opens today: All you need to know about GMP, Price band, Lot size, and other key details

Updated: 12 Jul 2023, 08:59 AM IST
TL;DR.

Utkarsh Small Finance Bank recorded the second fastest AUM growth between Fiscal 2019 and Fiscal 2022 among SFBs with an AUM of more than 50 billion.

The Initial Public Offering of Utkarsh Small Finance Bank is set to open on Wednesday, July 12, and will remain open for subscription until Friday, July 14. The offering comprises a fresh issue of equity shares totaling 500 crore. Post-issue, the promoter and promoter group stake in the company drops to 68.28% from the current stake of 84.75%.

The price band for the offer has been fixed at 23–25 per equity share, with a face value of 10 each. The net offer will be reserved for qualified institutional buyers at 75% of the total offer size, non-institutional investors at 15%, and retail investors at 10%.

Retail investors have the opportunity to submit bids for up to 13 lots, with each lot consisting of 600 shares. At the upper band of the IPO price, retail investors are required to make a minimum investment of 15,000 per lot.

Ahead of the IPO, the company's shares in the grey market are trading at a healthy premium of 14.

Let's delve into the bank's operations, expansion plans, and objectives of the issue, as well as an overview of its current financial position.

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Business Overview

Utkarsh Small Finance Bank recorded the second fastest AUM growth between Fiscal 2019 and Fiscal 2022 among SFBs with an AUM of more than 50 billion, as per company's DRHP report.

The bank's journey began when its promoter, Utkarsh CoreInvest Limited, ventured into the financial sector as a Non-Banking Financial Company (NBFC) in Fiscal 2010. Initially focused on providing microfinance services to the underserved segments, particularly in Uttar Pradesh and Bihar, Utkarsh CoreInvest Limited received the coveted RBI In-Principle Approval on October 7, 2015, to establish an SFB. This led to the incorporation of Utkarsh Small Finance Bank Limited as a wholly owned subsidiary on April 30, 2016.

After obtaining the RBI licence on November 25, 2016, Utkarsh CoreInvest Limited transferred its microfinance business to Utkarsh Small Finance Bank, which commenced operations on January 23, 2017. Since then, the bank has expanded its footprint across India, boasting 686 Banking Outlets and a dedicated workforce of 12,617 employees as of March 31, 2022.

Remarkably, 27.70% of its Banking Outlets are located in Unbanked Rural centres (URCs), surpassing the regulatory requirement for SFBs. As of March 31, 2022, the bank served a customer base of 3.14 million, encompassing both deposit and credit customers.

The majority of these customers are located in rural and semi-urban areas, primarily in the states of Bihar, Uttar Pradesh, and Jharkhand. Notably, these regions boast superior asset quality and demonstrate low to moderate credit penetration, according to the bank.

These states, as of March 31, 2022, constituted 34.27%, 26.53%, and 7.10% of the bank's total Gross Loan Portfolio (based on the location of the Banking Outlet), respectively.

Product Portfolio

The bank offers a range of financial products and services that address the specific requirements of our customer segments. "Our product portfolio includes asset products that we advance to customers located primarily in unbanked and underbanked areas and liability products in the form of deposits that we source from customers across regions, " the bank said in its DRHP report.

The bank asset products include micro banking loans that include joint liability group loans, and individual loans; retail loans that include unsecured loans, such as business loans and personal loans, and secured loans, such as loans against property ("LAP").

Furthermore, the bank extends wholesale lending facilities to SMEs, mid- and large-sized corporations, and institutional clients. It also offers housing loans with a specific focus on affordable housing, as well as commercial vehicle and construction equipment loans. In Fiscal 2022, Utkarsh Small Finance Bank successfully launched gold loans, further diversifying its asset product range.

On the liabilities side, the bank offers a wide array of deposit accounts, including savings accounts, current accounts, and various term and recurring deposit accounts.

Strong deposit growth

Over the years, the bank has witnessed significant growth in its total deposits, increasing from 7,507 crore as of March 31, 2021, to 10,074.18 crore as of March 31, 2022, and further rising to 13,710 crore as of March 31, 2023.

Moreover, the number of deposit-only customers has also seen a notable rise, reaching 0.65 million as of March 31, 2022, from 0.23 million in 2020.

Steady rise in Loan portfolio

The bank's Gross Loan Portfolio has experienced consistent growth, expanding from 8,415 crore in FY21, to 10,630.73 crore in FY22, and for the FY23, the loan porrfolio reached to 13,957.11 crore

The micro-banking portfolio constituted 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.

Sound understanding of microfinance segment and presence in rural and semi-urban areas

The promoter of the bank, Utkarsh CoreInvest Limited, has a history of serving customers in the microfinance segment, with a particular focus on financial inclusion for unserved and underserved customer segments in rural and semi-urban areas.

Based on bank credit accounts in rural areas, Himachal Pradesh, Odisha, Jharkhand, and Bihar have more than 45% of the credit accounts in rural areas, as of March 31, 2022. Further, Bihar, Uttar Pradesh, and Jharkhand have the best asset quality amongst the other states and have a portfolio at risk greater than 30 days and a portfolio at risk greater than 90 days lower than that at a pan-India level.

These underserved regions hold immense growth potential, as they are yet to be fully tapped, and the bank believes that its understanding of the customer segments in rural and semi-urban areas in these geographies, coupled with its significant presence in these areas, allows the bank to cater to the financing requirements of potential customers.

Other products and services

The bank offers a range of third-party products, including distribution of life insurance, health, motor, accidental, and other general insurance products, and mutual funds schemes; money transfer services (inward remittances); an integrated bill payment system; and distribution and facilitation of accounts under certain Government schemes.

Expansion Plans

Given the legacy of Utkarsh CoreInvest Limited as a non-banking finance company-microfinance institution, microfinance remains a focused business segment for the Bank. The bank, however, has been diversifying its product portfolio to include non-micro banking loans, allowing it to reduce dependence on our microfinance business and grow our secured loan portfolio.

Objectives of the Issue

The company proposes to utilize the Net Proceeds from the Fresh Issue towards fully augmenting its Tier-1 capital base to meet its future capital requirements.

Financials

Net interest income (NII), which is the difference between the interest earned from lending activities and the interest paid to depositors, is a key metric for measuring the financial health of a bank.

The bank has demonstrated consistent growth in NII over the years. In FY21, the NII stood at 839.25 crore, which increased to 1,060.85 crore in FY22, and further grew to 1,529.03 crore in FY23. While the net interest margin (NIM) of the bank rose to 9.57% during FY23, compared to 8.75% in FY22.

Further, the bank reported a net profit of 404.5 crore for the fiscal year ended March 31, 2023, marking an impressive 558% rise over FY22's net profit of 61.46 crore.

Asset Quality

The bank's gross non-performing assets (NPAs) as a percentage of gross advances stood at 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 made above are those of individual analysts or broking companies, and not of MintGenie.

 

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First Published: 12 Jul 2023, 08:59 AM IST