CAPITAL SMALL FINANCE BANK LIMITED - IPO Analysis

Summary

The ‘Capital Small Finance Bank Limited’ officially issued its Prospectus on February 01, 2024 mentioning the important details regarding its recent Initial Public Offering (hereinafter referred as IPO) which has started from February 07, 2024 and closes on 09 February, 2024. In this article we will look at some Important Financial Details of the company and the IPO, which investors need to consider before investing in a right company.

INITIAL PUBLIC OFFERNING | CAPITAL SMALL FINANCE BANK LIMITED

The ‘Capital Small Finance Bank Limited’ officially issued its Prospectus on February 01, 2024 mentioning the important details regarding its recent Initial Public Offering (hereinafter referred as IPO) which has started from February 07, 2024 and closes on 09 February, 2024. In this article we will look at some Important Financial Details of the company and the IPO, which investors need to consider before investing in a right company.

ABOUT THE COMPANY

As per the details of the company present on its official website, the company was incorporated in the year 1999 as a public company with the name ‘Capital Local Area Bank Limited’ and subsequently, in the April 2016 the company changed its name to ‘Capital Small Finance Bank Limited’.

BUSINESS OPERATIONS

As of September 30, 2023, Capital Small Finance Bank Limited has around 41.62% of its branches in rural regions, 34.68% in semi-urban areas, and 23.70% in urban areas. The bank predominantly serves middle-class client segments that live in semi-urban and rural areas. The bank hopes to meet the requirements of those with average yearly earnings between ₹ 0.4 million and ₹ 5 million who might not have much or any access to regular banking channels by serving these groups. The bank's initial focus was on serving the local community, hence its regional reach was limited. But since changing into a small finance bank, it has effectively widened iCAts client base and improved operational and business KPIs by expanding its activities into new and adjacent areas. At the moment, the bank has 173 branches and 175 ATMs spread throughout five states and one union territory. Approximately 76.30% of its branches are located in rural and semi-urban regions, encompassing 24 districts and catering to 75.75% of its overall clientele.

INDUSTRY RESEARCH

In order to meet the financial requirements of low-income populations and advance financial inclusion, the RBI established small finance banks (SFBs) in 2015, including organisations like Capital Small Finance Bank Limited. With its emphasis on rural and semi-urban regions, these banks have demonstrated a great deal of development potential, particularly in serving underserved communities. SFBs have the chance to capture a bigger market share by extending services to the underbanked and delivering specialised offers, especially in areas where public and private sector banks presently have a disproportionate amount of market share. Organisations making the switch from local area banks or urban cooperative banks to SFBs can take advantage of their current local presence to expand their reach into these areas and provide more services.

COMPETITION

Operating in a highly competitive environment, Capital Small Finance Bank Limited faces rivalry from a range of entities, including other small finance banks, scheduled commercial banks, NBFCs, and local moneylenders, especially in rural regions. The bank places a strong emphasis on value-added services, timely customer service, high-quality services, an increasing branch network, and technical innovations in service delivery to differentiate itself in this competitive market. But adhering to strict rules that apply to small financing institutions presents difficulties, which might reduce earnings and make it more difficult to successfully compete with other firms in the organised sector. Furthermore, the industry may see more competition as a result of the RBI's release of rules for SFB on-tap licencing. Competition across product sectors is further intensified by the growth and expansion of scheduled commercial banks, public and private sector banks, payment banks, and foreign banks. The increased level of competition presents a noteworthy danger to the bank's operational and financial success.

BOARD OF DIRECTOR AND PROMOTERS OF THE COMPANY

The company’s management includes the following members-

01.  Navin Kumar Maini as Independent Director and Part-Time Chairman of the company.

02.  Sarvjit Singh Samra as Managing Director and Chief Executive Officer of the company.

03.  Munish Jain acting as Executive Director and Chief Financial officer of the company.

04.  Srinath Srinivasan, Mahesh Parasuraman, Dinesh Gupta, Balbir Singh acting as an Non-Executive Directors of the company.

05.  Gurpreet Singh Chug, Sham Singh Bains, Nageswara Rao Yalamanchili, Rachna Dikshit, Kamaldeep Singh Sangha, Sukhen Pal Babuta  acting as Independent Directors of the company.

KEY FINANCIAL DETAILS OF THE COMPANY

To make a wise investment choice, we will delve into various financial ratios for a comprehensive assessment of the company's financial condition and performance.  

DETAILS OF THE IPO

The book-built Capital SFB IPO is worth Rs 523.07 crores. It includes an offer to sell 0.16 crore shares, valued at Rs 73.07 crores, and a new issuance of 0.96 crore shares, valued at Rs 450.00 crores. A minimum lot size of 32 shares is required, and the IPO price range is established at ₹445 to ₹468 per share. The required minimum investment for retail investors is ₹14,976. The minimum lot size investment for B-NII is 67 lots (2,144 shares) totalling ₹1,003,392, but for S-NII it is 14 lots (448 shares) totalling ₹209,664.Some Important details with respect to the Application Size for Qualified Institutional Bidder and Non-Institutional Investor has been Summarised in the following table:

OBJECTIVES OF THE IPO

The objective of the issue of the IPO is for (i) Meeting the working capital expenses; (ii) meeting the general corporate expenses of the company.

RISKS INVOLVED

The non-compliance of Small Capital Finance Bank Limited with laws and instructions issued by the Reserve Bank of India (RBI) gives rise to a number of regulatory issues. Previous non-compliance incidents, notably the 2004–2005 distribution of equity shares to over 49 individuals, have led to settlements with regulatory organisations such as the Securities and Exchange Board of India (SEBI). The operational autonomy of the bank is restricted by the Banking Regulation Act, 1949, which also requires RBI clearance for certain activities and places restrictions on shareholder freedom. Restrictions on foreign ownership and voting rights, upholding minimum capital and net worth, and obtaining RBI permission for sizable shareholding purchases are all examples of compliance requirements. Additionally, the bank is subject to contingent obligations arising from client guarantees, which might have an effect on its financial stability should they come to pass. Furthermore, the RBI's frequent inspections have found non-compliances, which has made remedial measures necessary in areas like asset categorization, KYC protocols, and IT systems. The bank works hard to resolve regulatory issues, but its business operations, financial health, and reputation are at danger due to continuous inspection and possible future observations by the RBI.

ANALYSIS AND RECOMMENDATION

Investors have a chance with Capital Small Finance Bank Limited's initial public offering (IPO), but there are hazards involved. The bank's emphasis on catering to middle-class customers in semi-urban and rural regions is in line with the RBI's efforts to promote financial inclusion; nonetheless, there are serious concerns over regulatory compliance. Potential operational difficulties and financial effects are highlighted by previous instances of non-compliance and ongoing regulatory monitoring. Furthermore, the competitive environment highlights the necessity for the bank to set itself apart through value-added services and technical innovation. These rivalries include those with other small financing banks, scheduled commercial banks, NBFCs, and local moneylenders. Notwithstanding these obstacles, growth potential is suggested by the IPO's goal of covering basic company requirements and working capital expenditures. Before making an investment, however, investors should thoroughly consider the bank's competitive positioning, regulatory history, and financial stability. It is advisable to engage in financial adviser consultation and meticulous due diligence in order to minimise risks and make well-informed investment decisions.

IMPORTANT DATES