Equitas Small Finance Bank has launched its IPO The period for subscription began on 20th October and shall end on 22nd October 2020. The scrip will be listed on 2nd November 2020. The current offer for sale is of 7.2 crore equity shares amounting to Rs 237.60 crores and a fresh issue of equity shares aggregating to Rs 237 crores. Offer for sale amount goes to the promoters, as it is their exit. Fresh equity goes into funding for the company. The company aims to raise close to Rs 517 crores through the IPO. Let’s find out more about this IPO.

About the IPO

Issue OpenOct 20, 2020
Issue CloseOct 22, 2020
IPO PriceRs 32 – Rs 33
Lot Size450 Shares
Minimum Order Quantity450 Shares or 1 lot 
Face ValueRs.10
IPO SizeRs 517.60 crore
Fresh IssueEquity Shares of Rs 10 amounting to Rs 280 crores
Listed onBoth NSE & BSE

On Day 1, the IPO was subscribed by 39%. It received bids for 4,54,01,850 shares against a total issue size of 11,58,50,001 shares according to NSE data.

On Day 2, the IPO was subscribed by 50%. Receiving bids for 5,80,78,800 shares according to NSE data. 

Overall, the IPO has been subscribed 0.67 times as of Day 2.

CategorySubscription Status
Qualified Institutional Buyers(QIB)0.05 Times
Non-Institutional Investors(NII)0.05 Times
Retail(RIIs) 1.42 Times
Employee0.97 Times
Others0.24 Times
Total0.67 Times
QIB subscription looks low

Investors who have shares of Equitas Holdings (EHL) which is the parent company of Equitas Small Finance Bank are eligible to apply under the shareholder’s category of Equitas Small Finance Bank IPO. The company has reserved 10% of the offer for Shareholders of EHL amounting close to Rs 51 crores.

About the Company

  • The Equitas Small Finance Bank is an institution founded in 2007 that provides retail baking services and other financial services. The aim of a small finance bank is financial inclusion of areas like small businesses, marginal farmers, micro-industries, and unorganized sector entities. Small Finance Banks with net worth above Rs 500 crore are supposed to mandatorily get listed on the stock exchanges within 3 years, and this is why Equitas SFB is doing its IPO.
  • Equitas SFB is the largest small finance bank in terms of outlets and the second-largest in terms of assets under management and deposits according to CRISIL.  
  • The company possesses the following strengths:
    • Largest Small Finance Bank in terms of outlets(856 banking outlets and 322 ATMs), therefore better market distribution network in terms of micro-financing services.
    • Customized Credit Assessment before giving out loans, this ensures low NPAs. The Gross NPA for the company was 2.68% of total advances or total money lent out. 
    • The bank has a well-diversified asset portfolio which includes Vehicle Finance, Agriculture Finance, Micro Finance, Housing Finance, MSE Finance, and Corporates. The Secured-Loan product segment has grown at a CAGR of 48.35% over the last two years.
    • The company is technology-driven and has invested close to ~65 Crores in Q1FY21, on technology initiatives.
    • Experienced leadership and trained employee base.
  • There are certain risk factors involved with the company such as :
    • COVID-19 pandemic. May lead to reduced collections, reduced disbursements and deposits, and increased provisioning for loans. There may be a significant increase in our NPA levels.
    • The bank is subject to stringent regulatory requirements of RBI and other regulatory authorities. Failing to comply with them might make an impact on the business. SFBs or Micro Financing is a relatively new concept in India as compared to traditional banking. The company provides small business loans, microfinance, and vehicle finance loans are under-served segments in India. The health of the business depends on the ability of first-time borrowers to pay back in time.
    • The majority of the bank’s advances are in Tamil Nadu, any adverse changes that might affect the region can give an impact on the business.
    • Subject to Interest Rate Risk. Any volatility in interest rates or inability to manage interest rate risk could highly affect the bank.
    • Equitas SFB was earlier an NBFC and used to fund itself using term loans from big banks and financial institutions. Now the company depends on deposits and refinancing to fund itself. SFBs are restricted by RBI guidelines to perform certain functions related to funding. The inability to fund itself might be a problem for the bank. 

The company’s vital financials are as follows:

30 June ’2031 March ’2031 March ’1931 March ’18
Total Assets20,892.1419,314.5515,762.6913,301.15
Total Income750.972927.802394.831772.90
Total Expenses693.302684.162184.271741.07
Profit After Tax57.67243.64210.5731.83
Amount in Rs. Crores

The concept of Micro Finance is still relatively new in India. RBI guidelines on SFB creates certain bottlenecks in their operations. However, these banks to reduce risk have created a stringent credit assessment procedure to avoid a high number of NPAs. It is advised that an investor thoroughly goes through the company’s strategy regarding funding, credit facilities, expansion of business, and other important vital ratios. Such vital information can be found in the company’s RHP or Red Herring Prospectus. You can check out the Red Herring Prospectus of the company over here.