Utkarsh Small Finance Bank Ltd. IPO

Published by Sharekhan Education | July 13, 2023

The Utkarsh Small Finance Bank Ltd IPO, with an issue size of ₹500 Cr and a price band of ₹23-25, is scheduled to open on Wednesday, 12th July, and close on Friday, 14th July 2023.

Company Overview:

Headquartered in Varanasi, Utkarsh Small Finance Bank is a leading Small Finance Bank focusing on financial inclusion. The bank, catering to underserved customer segments, operates through an extensive network of 830 banking outlets with a workforce of 15,424 employees. Notably, 62.8% of its outlets are strategically located in rural and semi-urban areas.

Objects of Utkarsh Small Finance Bank Ltd IPO Issue:

The IPO involves a fresh issue of equity shares amounting to ₹500 crores.The company will utilize the funds raised to strengthen its Tier-1 capital base for future capital requirements. Investors are required to apply for a minimum of 600 shares, with subsequent multiples. After allotment, the shares will be listed on both BSE and NSE, enhancing the brand’s visibility.

Competitive Strengths:

The bank’s understanding of customer segments in rural and semi-urban areas, coupled with the promoter’s microfinance experience, positions it for cross-selling opportunities. Cost efficiency is maintained through automation and digitization, reflected in the lowest cost-to-income ratio among SFBs with a Gross Loan Portfolio exceeding ₹60 billion.

Business Strategy:

The bank aims to diversify its lending book by extending offerings from Joint Liability Group loans to individual loans and other asset products. Moreover, the focus on CASA and the retail deposit base continues for a robust liability franchise. Additionally, diversification of revenue streams through third-party product cross-selling and strategic technology investments are key components of their growth strategy.

Concerns:

Stringent regulatory requirements and prudential norms pose a challenge, and any non-compliance could impact business operations. Dependency on the Micro banking segment, particularly joint liability group loans, exposes the bank to asset quality risks. Additionally, interest rate risk is a vulnerability.

Financials :

The bank reported the third fastest Gross Loan Portfolio growth of 31% CAGR between FY 2019-23 among SFBs with GLP of more than ₹ 60 billion. CASA to total deposits ratio of the Bank increased from 17.6% in FY21 to 20.8% in FY23. The net NPA of the Bank decreased from 1.3% in FY21 to 0.39 % in FY23. Return on Assets improved to 2.4% in FY23 from 0.48% in FY21. At the upper end of the price band (₹23-25) the issue is reasonably priced at a P/BV of 1.10x post-issue book value.
Source – IPO Prospectus

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