Ujjivan Small Finance Bank’s Rs 750-Crore IPO To Open On Dec. 2
Ujjivan Small Finance Bank, the banking arm of Ujjivan Financial Services Ltd., will launch its three-day initial public offering on Dec. 2 as it looks to comply with Reserve Bank of India’s regulations.
The small finance bank aims to raise nearly Rs 750 crore from the offering by selling shares at Rs 36-37 apiece, according to its red herring prospectus filed with Securities and Exchange Board of India. It has already sold 7.14 crore shares for Rs 250 crore in the pre-IPO placement.
Kotak Investment Banking, IIFL Securities and JM Financial are bankers to the issue.
Apart from complying with the RBI’s guideline of listing before February 2020, Ujjivan Small Finance Bank’s promoters must pare their stake in the lender from 94.4 percent presently to 40 percent within five years of starting operations—February 2022. The bank also said it will use the IPO proceeds to shore up its tier-I capital ratio, which was 18.1 percent as of the quarter ended September.
“It’s a fresh issue of shares and the promoter shareholding will come down to 85 percent post the issue,” Samit Ghosh, managing director and chief executive officer of Ujjivan Small Finance Bank, told BloombergQuint in an interview today. “We’ve raised Rs 50 crore via employee stock purchase plan.’’
Nearly 75 percent of the issue has been reserved for qualified institutional buyers, while up to 10 percent is allotted for retail investors. Non-institutional buyers and Ujjivan Financial Services’ shareholders would be allotted up to 15 percent and 10 percent of the issue, respectively, the small finance bank said in the prospectus.
The central bank had in October last year instructed promoters of small finance banks to list their banking units separately within three years of operation, in line with the regulator’s licensing requirements.
Until now, the holding companies of small finance banks—such as Ujjivan Financial Services and Equitas Holdings Ltd.—were listed while their actual banking units weren’t. Ujjivan Small Finance Bank’s IPO and eventual listing will make the group compliant with the regulations.
As part of the draft red herring prospectus, the small finance bank had mentioned certain observations made by RBI for which it came out with clarifications last month. These observations pertained to weak systems in place to detect fraud and lack of compliance in various operations.
The bank said that in order to address the observations made by RBI, it has taken the following measures:
- It’s now tagging priority sector loan accounts online, removed priority sector lending accounts that didn’t qualify for such classification and processing fees collected from such accounts were refunded to customers.
- Agricultural loans that were miscategorised as PSL advances have been re-classified as non-PSL advances.
- The bank has also put in place a scorecard-based framework to rate borrowers and is currently working on automation of rating methodology for its medium and small enterprises and housing loan book.
- Currently evaluating vendors to automate its manual fraud management system.
- Further necessary quality control processes have been implemented to prevent different interest rate being included in sanction letters and loan agreements and prevent discriminatory interest rates being applied on deposits of the same tenor and same amount.
- The bank’s compliance function is now an independent function and reports to the managing director and chief executive officer.
The bank said the imposition of any penalty or adverse findings by RBI during any ongoing or future inspections may have an adverse effect on business, results of operations, financial condition and reputation.
Ujjivan Small Finance Bank had advances of Rs 12,864 crore, deposits of 10,130 crore and net profit of Rs 146 crore in the first six months of 2019-20. It also said it’s moving to raise more low-cost deposits from mass-market customers and replacing costly wholesale deposits with the retail deposits.