Utkarsh Small Finance Bank IPO - 7 Things to Know

Utkarsh Small Finance Bank, has already got the SEBI approval for its proposed IPO way back in June 2021. However, the company is to finalize on the issue date and is likely waiting for robust and favourable market conditions to launch the IPO. The IPO approval accorded by SEBI will only be valid till the end of May 2022 before which time the IPO has to be completed.

7 Important Things to Know About Utkarsh Small Finance Bank IPO

1) Utkarsh Small Finance Bank will tap the primary market with its combination of initial offer and an offer for sale (OFS). While the dates of the IPO are not yet finalized, the overall size of the IPO is expected to be Rs.1,350 crore.

The IPO, as per the draft herring prospectus (DRHP) filed with SEBI will comprise of a fresh issue of Rs.750 crore and an offer for sale of Rs.600 crore in total.

2) Utkarsh Small Finance Bank will use the OFS portion to give a partial exit and monetization of stake opportunity to the early investors and the promoters of Utkarsh Small Finance Bank. The OFS will also enhance the free float in the market and improve the chances of more reliable price discovery.

This will ensure that the stock can be used as currency by the company to raise capital in the future. The entire OFS portion of Rs.600 crore will be done by the major promoter of the small finance bank viz. Utkarsh Core invest Ltd.

3) As stated earlier, the fresh issue component of Utkarsh Small Finance Bank IPO worth Rs.750 crore, will be largely used to boost the capital adequacy of the small finance bank. For most small finance banks in India, the funds are not available on tap in the market unlike larger PSU and private sector banks.

Hence for the SFBs, the public issue is the most reliable route to enhance the capital base so that the asset book can be boosted in the future without worrying about capital adequacy. 

4) Utkarsh Small Finance Bank is a small finance bank based out of Varanasi in the state of Uttar Pradesh. Currently, there are 4 listed small Finance banks in India and these include the Ujjivan Small Finance Bank, Equitas Small Finance Bank, AU Small Finance Bank and Suryoday Small Finance Bank.

Apart from these listed banks, two more outfits viz. ESAF small finance bank and Utkarsh small finance bank will be hitting the IPO market soon to raise funds via the IPO route. It may be recollected that ESAF SFB had chosen to let its first approval lapse due to adverse market conditions.

5) Ahead of the actual IPO, Utkarsh Small Finance Bank also plans to raise around Rs.250 crore as pre-IPO placement and if successful, the total IPO size will be reduced proportionately.

Utkarsh Small Finance Bank is already a profitable bank and it currently has 828 banking outlets across the length and breadth of 18 Indian states in India. In addition, it also has 8,729 employees on its rolls.

6) According to information available in the DRHP, Utkarsh Small Finance Bank will reserve a total of 75% of the issue size for the qualified institutional buyers (QIBs), 15% for the non-institutional investors (HNI) and the balance 10% will be reserved for the retail investors.

Typically, SFBs must have 25% of their outlets located in unbanked rural areas and in the case of Utkarsh Small Finance Bank, the share is more than 27%. Utkarsh Small Finance Bank plans to expand its franchise to other states too but prefers to use the services of business correspondents (BCs) and direct sales agents (DSAs) for expanding at a scalable yet lower cost model.

7) The IPO of Utkarsh Small Finance Bank will be lead managed by ICICI Securities, IIFL Securities and Kotak Mahindra Capital. They will act as the book running lead managers or BRLMs to the issue. KFIN Technologies (formerly Karvy Computershare) will be the designated registrars to the issue.
 

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