Capital Small Finance Bank Ltd IPO

Upcoming DRHP

IPO Synopsis

Capital Small Finance Bank filed its DRHP with SEBI on 30 October, 2021 and is currently waiting for SEBI’s approval. The IPO consists of a fresh issue of Rs.450 crore and an offer for sale of up to 3,840,087 equity shares. According to the DRHP, the OFS will witness the offloading of 3.37 lakh equity shares by PI Ventures LLP, Amicus Capital Private Equity I LLP will offload up to 6.04 lakh equity shares, 70,178 equity shares are to be offload by Amicus Capital Partners India Fund I, up to 8.37 lakh equity shares are to be offloaded by Oman India Joint Investment Fund II and lastly, 19.91 lakh equity shares by other shareholders.
The book running lead managers to the issue are Edelweiss Financial Services Ltd, Axis Capital Ltd and SBI Capital Markets Ltd. The main objective of the issue is to augment the Tier-1 capital base of the bank. The promoters are Sarvjit Singh Samra, Amarjit Singh Samra, Navneet Kaur Samra, Surinder Kaur Samra and Dinesh Gupta.

About Capital Small Finance Bank Ltd

Capital Small Finance Bank was given its scheduled status by the RBI in February, 2017. It started its operations on April 24, 2016 as India’s first small finance bank, after it converted from Capital Local Area Bank. It was the largest local area bank in India since January 14, 2000. The bank made this transition from a local area bank to a small finance bank with 47 branches. Now, 112 new branches have been established which takes the total number to 159 branches. The bank started its operations in Punjab and has now expanded to Haryana, Rajasthan, Delhi, and union territory of Chandigarh.

71.12% of the business of the bank comes from rural and semi urban areas and the total accounts opened by the bank currently stands at 6,85,599 accounts. As on June 30, 2021, the bank has 161 ATMs and 74% of the branches are located in rural and semi urban areas. 

The products offered by the bank include agriculture loans, trading and MSME loans and mortgages. As of 30 June 2021, the loan book amounted to Rs.3680.8 crore and 36.88% of this are agriculture loans, MSME and trading loans are 26.08% and lastly, mortgages consist of 22.66% of the loan book.

The company has the lowest GNPA and NNPA among all the small finance banks in India as of 31 March,2021. Capital Small Finance Banks’s gross NPA ratio which stands at 2.1% is the second best among all the private sector banks. The bank generates fee income from various products and services like forex, money transfer, remittances, safe-deposit lockers, distribution of life insurance and general insurance.

They have also improved on their technological capabilities and have increased the scale of digital transactions and interaction with customers. Capital Small Finance Bank offers lower interests on savings account as compared to its competitors. This enables them to bring their cost of deposits to 5.7%, the lowest among the small finance banks.

Particulars

(In Rs cr)

Q1 ended June 30, 2021

FY21

FY20

FY19

Total Income

147.39

557.29

501.09

377.59

PAT

12.18

40.78

25.38

19.41

EPS

3.59

12.04

8.18

6.82

 

Particulars

(In Rs cr)

Q1 ended June 30, 2021

FY21

FY20

FY19

Total Borrowings

542.44

616.72

420.92

358.3

Total Asset

6565.8

6371.23

5329.8

4321.2

Equity Share Capital

34

33.91

33.80

28.48

 


Key Ratios:

Particulars

Q1 ended June 30, 2021

FY21

FY20

FY19

CASA Ratio

40.48

40.07

36.31

38.39

Net Interest Margin

3.55

3.4

3.52

3.58

Interest Spread

5.84

5.58

5.47

5.60

ROE

10.65

9.51

7.72

8.02

Cost to Income ratio

66.79

70.75

75.77

79.41


Peer comparison:

Capital SFB has a GNPA of 2.08%, the lowest among all its competitors and has also witnessed the highest liquidity ratios of 441%, among its peers. Capital also has the lowest credit cost among all the players, standing at 0.3% and is followed by AU small finance bank which has a credit cost of 1.5%. The bank has the highest loan to book ratio of 138.7% followed closely by ESAF small finance bank standing at 110.2%. The bank’s cost of funds stood at 5.8% which is the lowest among all small finance banks. AU SMF bank has the second lowest cost of funds which is 70bps higher than Capital’s. 
 

Bank

RoE

Total Income

(In Rs bn)

PAT

Capital Adequacy ratio

GNPA %

AU SFB

22.30%

57.5

1,171

23.40%

2.70%

Equitas SFB

12.70%

36.1

384.2

24.20%

3.70%

Ujjivan SFB

0.30%

31.2

8.3

26.40%

7.00%

Jana SFB

7.80%

27.3

84.3

19.30%

-

Utkarsh SFB

9.40%

17.3

111.8

21.90%

3.70%

ESAF SFB

8.70%

17.7

105.4

24.20%

6.70%

Fincare SFB

11.80%

13.8

113.1

29.50%

3.46%

Capital SFB

9.50%

5.6

40.8

19.80%

2.08%

Suryoday SFB

0.90%

8.8

11.9

51.50%

9.40%

North East SFB

1.90%

3.1

7.2

21.22%

11.58%


Key Points for Capital Small Finance Bank IPO are:

IPO Key Points

  • Strengths

    1. The bank has a strong CASA ratio which has shown consistent increase from 35.16% in FY16 to 40.07% in FY21. They have also been the bank with the second highest deposits form FY18 to FY21, as compared to private sector banks.

    2. The bank has a very secure loan book and is primarily focused on income generation. 99.39% of the loan book was secured and 86.24% of it was secured by immovable properties, as on 31 March, 2021

    3. A good asset quality has been maintained by the bank in lieu of its excellent risk management process along with strong credit risk assessment.

    4. The company has focused more on the middle income segment and have operated as a one stop shop financial hub for these customers and have also made the effort to understand their target market’s needs and requirements.

  • Risks

    1. The business is located primarily in the North of India, especially Punjab. If anything goes awry in those regions, due to lack of further diversification, the financials of the company are bound to suffer.

    2. Inefficiency or any lack in controlling credit assessment will increase the credit and operational risk and also in turn increase the NPA which is harmful to the financials of the bank.

    3. Any volatility in the interest rates will lead to a decrease in the net interest margin of the bank and thus adversely affecting the cash flows and business of the bank.

    4. A sudden increase in the operating expense without a proportional increase in the amount of income will adversely affect the financial conditions.

    5. Brand reputation is very important for Capital SMF bank and any event which brings negative publicity or the bank’s inability to augment and enhance brand visibility will adversely affect the financials and cash flow of the bank.

How to apply for IPO?

  • Login to your 5paisa account and select the issue in the current IPO section

  • Enter the number of lots and price at which you wish to apply for

  • Enter your UPI ID and click on submit. With this, your bid will be placed with the exchange

  • You will receive a mandate notification to block funds in your UPI app

  • Approve the mandate request on your UPI and funds will be blocked