Utkarsh Small Finance Bank IPO: All you need to know

Utkarsh Small Finance Bank plans to launch its Initial Public Offer (IPO) which will be available for subscription from 12 to 14th July 2023. It is looking to raise Rs 500 crores from the primary market.

Utkarsh Small Finance Bank Overview:

Utkarsh Core Invest Limited formed Utkarsh Small Finance Bank (SFB) Limited as a fully-owned subsidiary on April 30, 2016. The newly formed SFB experienced remarkable growth in its Assets Under Management (AUM) in Fiscal 2019 and Fiscal 2022. Among SFBs with AUM exceeding Rs. 50 billion, Utkarsh recorded the second-fastest growth rate, showcasing its rapid expansion in a relatively short period. 

As of FY23, the bank boasted a network of 830 Banking Outlets across 26 States and Union Territories in India, covering 253 districts.

The company provides a wide range of products and services:

1. Housing loans with a focus on affordable housing.
2. Retail loans, consist of unsecured loans like personal and business loans, as well as secured loans such as loans against property.
3. Wholesale lending, offering both long-term and short-term loan facilities to SMEs, medium and large corporates, and institutional clients.
4. Micro-banking loans, which encompass individual loans and joint liability group loans.
5. Gold loans.
6. Commercial construction and vehicle equipment loans.

Banking Industry overview:

The Indian banking industry has witnessed various changes in recent years to promote financial inclusion. In line with the government's emphasis on financial inclusion and inclusive banking, the Reserve Bank of India (RBI) granted Small Finance Bank (SFB) licenses to 12 entities. SFBs primarily target the low-income segment and offer a comprehensive suite of products tailored to their needs. Unlike Non-Banking Financial Companies (NBFCs) that focus on specific products, SFBs have the opportunity to expand both vertically and horizontally. From Fiscal 2016 to 2022, small finance banks' Assets Under Management (AUM) achieved a compound annual growth rate (CAGR) of 26%.

Utkarsh Small Finance Bank IPO Details:

Utkarsh Small Finance Bank has set the price range for its upcoming initial public offering (IPO) at Rs 23-25 per share. 

(Source : DRHP)

ICICI Securities and Kotak Mahindra Capital Company have been appointed as the book-running lead managers for the Utkarsh Small Finance Bank IPO, while Kfin Technologies will serve as the registrar to the issue. The shares of the bank are expected to be listed on both the BSE and NSE, with a tentative listing date of July 24, which falls on a Monday.

Objective of issue:  

The bank plans to utilize the net proceeds from the IPO for the following objectives:

1. Strengthening its Tier-1 capital base to fulfill future capital requirements.
2. Covering the expenses associated with the issuance process.

Financial Analysis:

(Source: DRHP)

The deposits have increased from Rs 100,741.83 Million in March 2022 to Rs 137,101.40 Million in March 2023, which has shown a significant increase of 36.09%.

Similarly, advances of the bank have also increased from Rs 102,281.47 million in March 2022 to Rs 130,687.65 million in March 2023, with a significant increase of 27.77% indicating high-interest income for the bank and growth in the overall performance of the bank.

In terms of revenue, the bank has experienced a significant growth in total revenue, rising from Rs. 20,336.46 million in FY22 to Rs. 28,042.86 million in FY23, with a significant increase of 38%. Moreover, the bank's Net profits have also seen a notable increase, going up from Rs. 614.62 million in FY22 to Rs. 4045.02 million in FY23, with a significant increase of 558% over the past year.

(Source: DRHP)

Strengths of the Utkarsh Small Finance Bank:

1. The bank possesses a deep comprehension of the microfinance sector and boasts a robust presence in rural and semi-urban areas.
2. Utkarsh SFB with operations across 26 states and Union Territories with 830 banking outlets and 15,424 employees as of March 2023 had a 3.59 million customer base majorly located in rural and semi-urban areas primarily in Bihar and Uttar Pradesh.
3. The bank has implemented a superior risk management system and maintains a high standard of asset quality.
4. One of the notable strengths of the bank lies in its ability to provide products and services at an affordable cost. In Fiscal 2023, the bank achieved the lowest cost-to-income ratio among small finance banks with a Gross Loan Portfolio exceeding 60 billion.
5. Utkarsh Core Invest Limited, the company's promoter, has secured investments from several institutional investors, such as British International Investment PLC, RBL Bank Limited, HDFC Life Insurance Company Limited, and HDFC Ergo General Insurance Company Limited. These partnerships are expected to enhance the bank's credibility and reputation.                   

Risk of Utkarsh Small Finance Bank:

1. Compliance with extensive regulations is crucial for Utkarsh Small Finance Bank as any failure to adhere to them can have negative implications on the bank's business and operations.
2. The bank's net interest margins could be adversely impacted if there is volatility in interest rates or if the bank is unable to effectively manage interest rate risk.
3. The customers of the bank are concentrated in the states of Bihar and UP.

Competitors of Utkarsh Small Finance Bank:

Utkarsh SFB and other players end of fiscal year 2022:

(Source: DRHP)