Capital Small Finance Bank IPO : 7 things to know

Capital Small Finance Bank Ltd, one of the fastest growing unlisted SFBs in India has , had filed its draft red herring prospectus (DRHP) in November 2021 and SEBI has already approved the IPO in February 2022 by giving its observations.

However, due to the fairly volatile market conditions and IPOs reducing to a trickle, Capital Small Finance Bank Ltd is yet to announce the dates of its IPO. The IPO now looks more likely to happen only in the next financial year FY23 once the LIC IPO is through and the demand for IPOs comes back to the markets in a big way, considering the huge queue.
 

7 important things to know about the Capital Small Finance Bank IPO
 

1) Capital Small Finance Bank Ltd has filed for an IPO with SEBI and got approval and the IPO will be a combination of a fresh issue and an offer for sale. The price band for the issue is not yet fixed so we do no know the actual value of the IPO, but the new issue portion alone would be worth Rs.450 crore.

For the OFS portion, the company has filed the DRHP disclosing that 38.40 lakh shares will be offered by the early investors and the promoters. Once the price band is determined, the value of the IPO overall will be known. Like any SFB, Capital Small Finance Bank Ltd operates in the banking niche.

2) Out of the total issue size of the Capital Small Finance Bank IPO, let us look at the OFS portion of Rs.38.40 lakh shares first. For now, we only know the number of shares being offered as part of the offer for sale (OFS) and the price band will be announced closer to the actual opening of the IPO, which will indicate the size of the OFS and the overall size of the IPO.

The OFS will see the sale of up to 3.37 lakh shares by PI Ventures LLP and sale of up to 6.04 lakh shares by Amicus Capital Pvt Equity I LLP. In addition, other early investors and some of the promoters will also be engaged in tendering shares as part of the OFS.

3) The fresh issue portion of Rs.450 crore will be predominantly used to spruce up the capital buffers of the small finance bank. Capital Small Finance Bank Ltd, like any other SFB, needs to continuously spruce up its capital adequacy to ensure that it has the necessary regulatory buffers to boost its lending book.

The SFB already has a robust capital adequacy compared to the statutory requirement. As of June 2021, the Tier-1 capital of Capital Small Finance Bank Ltd stood at Rs.446 crore, which translates into risk weighted Tier-1 capital adequacy of 21.2%.

However, considering that its asset book is continuously growing, it needs a constant supply of capital to ensure adequate buffers.

4) Capital Small Finance Bank Ltd largely operates in the middle market segment and caters to the middle income groups with steady income flows and the ability to service debt. The company has the backing of several institutional investors like SIDBI, PI Ventures LLP, OIJIS II, Amicus, ICICI Prudential and HDFC Life.

The SFB can provide small lending products and it can also offer other financial distribution services. However, SFBs are barred from selling certain select products like RBI gold bonds. The idea of the model is to capitalize on the growing middle class in India and the explosion in credit demand.

5) As of June 2021, the deposit base of Capital Small Finance Bank had grown by 17% YoY to Rs.5,483 crore. During the same period, its total loan book has also grown by 15.8% to Rs.3,642 crore on a YoY basis.

While net profits doubled to Rs.12.18 crore for FY21, this was largely driven by a 20% surge in net interest income (NII) at Rs.571 crore. Gross NPAs saw a slight uptick from 1.27% to 1.44%, but on the positive side, the CASA (current and savings accounts) ratio increased to 40.48% in the latest year. 

6) Capital Small Finance Bank Ltd  is currently present and active in the four northern states of Rajasthan, Punjab, Haryana and Delhi. It has a network spanning 159 branches and a total of 161 ATMs spread across these regions. As of now, the SFB want to focus on its niche geographical area.

7) The IPO of Capital Small Finance Bank Ltd will be lead managed by Edelweiss Financial Services Ltd, Axis Capital and SBI Capital Markets. They will act as the book running lead managers or BRLMs to the issue.

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