IPO-Bound Equitas Small Finance Bank Has Enough Capital For Next 3 Years, Says CEO

Equitas Small Finance Bank has “good-enough” capital ratios to support the lender’s growth for the next three years, its chief executive officer has said ahead of a Rs 280-crore initial public offering.

“The capital adequacy of the bank is slightly over 21% now. And after the IPO it will go above 22%,” said Chief Executive PN Vasudevan in an interview to BloombergQuint’s Niraj Shah. “That is good enough to support the growth of the bank for maybe two, three years.”

Besides, Vasudevan said that the lender also has very little Tier-2 capital, so raising that is also an option to support additional growth.

The small finance bank is looking to raise up to Rs 280 crore of fresh capital where the promoter Equitas Holdings Ltd. plans to sell up to 7.2 crore shares. The funds raised, Vasudevan said, will be pumped into the bank’s network to boost growth.

Equitas Small Finance Bank was required by the Reserve Bank of India to list within three years of launch. While that got delayed—first by a scheme of arrangement that didn’t work out, then by the Covid-19 pandemic—the lender is now ready again to hit the bourses and comply with regulations. The IPO is set to open on Oct. 20.

Vasudevan said that small finance banks are in a “sweet spot” as they have the “genes” of a non-bank lender. Having that means small finance banks will have the ability to go and lend to very small borrowers and further financial inclusion. “As an organisation our DNA is tuned to handle very small-ticket loans to borrowers,” he said. “But as a bank we also have the benefit of accessing deposits at better rates than what NBFCs typically raise money at.”

Vasudevan cited a government survey that said of the 60 million small businesses with a credit demand of Rs 12 lakh crore, only 4% is being serviced by the banking sector. This large unmet demand is where Equitas Small Finance Bank step in and play a big role, he said.

Watch the full conversation here: