Fincare Small Finance Bank

Fincare Small Finance Bank Limited has filed DRHP with market regulator SEBI on May 3, 2023 to raise capital through IPO. The IPO of the Company consists of Fresh Issue and Offer for Sale both. The size of fresh issue is Up to [●] Equity Shares aggregating up to ₹625 crore and the size of offer for sale is Up to 17,000,000 Equity

Shares aggregating up to ₹ [●] crore. As part of OFS, the major selling shareholders are Fincare Business Services Limited, Wagner Limited, True North Fund V LLP,  Indium IV (Mauritius) Holdings Limited and Omega TC Holdings Pte. Ltd.

Business Model of the Company

Fincare Small Finance Bank Limited is a “digital-first” SFB with a focus on unbanked and under-banked customer segments especially in rural and semi-urban areas. 

The Company follows a business model focused on financial inclusion and aims to provide individuals and businesses with affordable financial products and services that meet their needs. The business objective of the Company is to enhance access to savings, credit and other financial products for unbanked and underbanked individuals, MSMEs and unorganized entities, especially in rural areas, by leveraging technology and last-mile distribution. As of March 31, 2023, 93.47% of the customers were located in rural areas, and 43.78% were new to credit.

The Gross Loan Portfolio of the bank (“GLP”) grew from ₹ 60,722.11 million to ₹ 99,111.44 million, registering a CAGR of 27.76%, from Fiscal 2021 to Fiscal 2023. This growth was driven primarily by growth in borrowers from 2.29 million as of March 31, 2021 to 3.40 million as of March 31, 2023, a CAGR of 21.87%. The ROE of the Company was 8.60% for Fiscal 2023 and it had a total of 4.27 million customers (comprising borrowers and depositors) as of March 31, 2023. 

Management of the Company

(i) Pramod Kabra is the Part-time Chairman and Non-Executive Director of the Bank. He holds a bachelor’s degree in commerce from Jodhpur University. He is also a chartered accountant with the Institute of Chartered Accountants of India. He was also associated with True North Managers LLP.

(i) Rajeev Yadav is the MD & CEO of the Bank. He holds a bachelor’s degree in technology from the Indian Institute of Technology, Kanpur, and a post graduate diploma in management from the Indian Institute of Management, Ahmedabad. He 

was previously the chief executive officer of G.E. Money Financial Services Private Limited.

Object of the Issue

Offer for Sale 

The Offer includes an Offer for Sale of up to 17,000,000 Equity Shares by the Selling Shareholders aggregating up to ₹[●] million pursuant to the Offer.The Selling Shareholders will be entitled to the proceeds from the Offer for Sale. The Bank will not receive any proceeds from the Offer for Sale. 

The Fresh Issue 

In terms of the RBI Final Approval and the SFB Licensing Guidelines, the Bank is required to list its Equity Shares on the Stock Exchanges within a period of three years from reaching a net worth of ₹5,000 million. The Bank proposes to utilize the Net proceeds from the Fresh Issue towards augmenting its Tier-1 capital base to meet its future capital requirements. 

Risks in the IPO 

The Bank’s 25% outlets are required to be located in unbanked rural area 

25% of the total banking outlets are required to be located in unbanked rural areas. If the bank is unable to effectively manage the growth associated with the expansion, the financial, accounting, administrative and technology infrastructure, as well as the reputation could be adversely affected.

Highly Competitive Industry 

The bank faces strong competition in its business from much larger government controlled public sector banks, large private sector banks, Indian and foreign commercial banks, non-banking financial companies, microfinance institutions, payment banks, other small finance banks, fintechs and other financial services companies which creates significant pricing pressures for the bank to retain existing customers and solicit new business.

The Business of the Bank is vulnerable to interest rate and investment-related risks

The business of the bank is vulnerable to interest rate and investment-related risks. Volatility in interest rates, value of investments and other market conditions could adversely affect the net interest margin, the value of the fixed income portfolio, the income from treasury operations, the quality of the loan portfolio and the financial performance.The business of the bank is vulnerable to interest rate and investment-related risks.

Subject to stringent laws and regulations 

The inability to comply with laws and regulations applicable to the bank may have an adverse effect on the business, results of operations, financial condition and cash flows. Further, regulation with respect to ownership and eligibility requirements of shareholders of equity securities of an SFB may impact its ability to raise capital and restrict investment in the bank. 

The bank is required to extend a minimum level of advances to certain sectors

The bank is required to extend a minimum level of advances to certain sectors, has limitations on the percentage of its on-book advances above a particular loan size and must maintain a prescribed cash reserve ratio, statutory liquidity ratio and minimum capital to risk-weighted assets ratio, each of which may have an adverse effect on the business operations.

Financial Performance 

As per the financial statements, in FY23, the total revenue of the bank increased 19% to Rs. 1970 crore as against Rs. 1644 crore in FY22. During FY23, the total expenses of the Company have also increased 14% to Rs. 1867 crore as against Rs. 1635 crore in FY22. The Company registered an increase of 46% in its net profit during FY23. During this period, the net profit of the Company was Rs. 278 crore as against Rs. 189 crore in FY22. 

In FY23, the net assets of the Company was Rs. 12467 crore as against Rs. 10901 crore in FY22. In FY23, the net equity and liabilities of the Company was Rs. 12467 crore as against Rs. 10901 crore in FY22. 

In FY23, the net cash used in operating activities of the Company was Rs. 56 crore as against Rs. 1388 crore cash used in FY22. During the same period, the net cash used in investing activities of the Company was Rs. 223 crore as against Rs. 281 crore cash used in FY22. In FY23, the net cash used in financial activities of the Company was Rs. 159 crore as against Rs. 1712 crore in FY22. In FY23, the net cash and cash equivalents at the end of the year was Rs. 746 crore as against Rs. 1185 crore in FY22.