Equitas Denied Deadline Extension For Listing Small Finance Bank

The Reserve Bank of India on Friday denied an extension of the deadline to Equitas Small Finance Bank for its listing on the bourses.

The banking regulator in a letter said that listing of small finance banks within three years of reaching net worth of Rs 500 crore is mandatory. As per the RBI’s licensing requirements, the deadline for listing the bank was Sept. 4.

As a punitive measure, the regulator imposed the following restrictions on Equitas Small Finance Bank with immediate effect:

• Bank is not permitted to open new branches till further notice.
• Remuneration of managing director and chief executive officer of the bank stands frozen at the existing level till further notice.

Further restrictions may be imposed if the bank fails to make “satisfactory progress” towards listing of its shares, the letter said.

Earlier this year, the microfinance lender had planned to go public using a provision that allowed companies to list without making an initial public offering of shares.

It had proposed a scheme of arrangement under which Equitas Small Finance Bank would issue 89 crore shares to shareholders of Equitas Holdings Ltd.—its listed parent—for no cash. The bank would reduce from its free reserves an amount equal to the face value of the shares of Equitas Small Finance Bank would issue under the scheme, the proposal had said.

The scheme of arrangement was subject to approval from the market regulator, the RBI, the National Company Law Tribunal, shareholders and creditors. Once the Securities and Exchange Board approves the transaction, the lender will have to file an application with the NCLT for the remaining clearances.

“In case the Scheme of Arrangement does not get approved, Equitas Small Finance Bank would be taking immediate steps for an IPO and get its shares listed as soon as possible,” the company said in a separate press statement on Saturday.

Ujjivan Small Finance Bank, which was also asked to follow similar guidelines, chose the IPO path and filed a draft red herring prospective last month.

According to Investec Securities, the approval for the Equitas scheme of arrangement would be in the best interest of all stakeholders. In case SEBI does not approve the structure, the lender will have to go for an IPO. “In that case, our target price (for Equitas Holdings) could fall to Rs 140-150 apiece (20-30 percent upside from current market price). Hence, we believe the worst is already priced in.”

Nirmal Bang said the RBI’s denial to extend the deadline will have no major impact on the lenders as it has already converted 375 branches into bank branches. After SEBI’s approval for the scheme of arrangement, it will take another five to six months for the NCLT’s nod, the brokerage said. “Any steep knee-jerk reaction (in parent Equitas Holdings stock price) could present a buying opportunity.”