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Utkarsh Small Finance Bank IPO is entirely a fresh issue of equity shares aggregating up to ₹500 crore. The fresh issue entails the issue of 20 crore shares in the price band of ₹23-25. Utkarsh SFB mainly focuses on microfinance and has been diversifying their business product portfolio to include non-micro banking loans to reduce dependence on their microfinance business and grow their secured loan portfolio. Headquartered in Varanasi, Uttar Pradesh, Utkarsh Small Finance Bank operates across India with a presence in 26 States and Union Territories.

About Utkarsh Small Finance Bank:

• The promoter of Utkarsh Small Finance Bank, Utkarsh CoreInvest Limited, commenced its operations as a NBFC in Fiscal 2010 and was focused on providing microfinance to unserved and underserved segments and in particular in the states of Uttar Pradesh and Bihar.
• On October 7, 2015, Utkarsh CoreInvest Limited received the RBI In-Principle Approval to establish an SFB, following which it incorporated Utkarsh Small Finance Bank Limited as a wholly-owned subsidiary on April 30, 2016. Subsequent to its obtaining the RBI Licence on November 25, 2016, to establish and carry-on business as an SFB, Utkarsh CoreInvest Limited transferred its business of providing microfinance, as a going concern to the Bank, which commenced its operations from January 23, 2017.
• The bank’s headquarters are in Varanasi, Uttar Pradesh, and it has strategically expanded its SFB operations in states where Utkarsh CoreInvest had prior microfinance experience.
• Utkarsh Small Finance Bank recorded the third fastest Gross Loan Portfolio growth between Fiscal 2019 and Fiscal 2023 among SFBs with Gross Loan Portfolio of more than ₹ 60 billion.
• The Banks operations are spread across India and are present in 26 States and Union Territories with 830 Banking Outlets and 15,424 employees, as of March 31, 2023.
• As of March 31, 2023, 27.35% of itsBanking Outlets were located in Unbanked Rural Centres (“URCs”) as against the regulatory requirement of 25% of banking outlets of SFBs to be located in URCs.
• Utkarsh Small Finance Bank operations are focused in rural and semi-urban areas and as of March 31, 2023, it had 3.59 million customers (both deposit and credit) majorly located in rural and semi-urban areas.
• As of March 31, 2023, U.P. and Bihar constituted 30.88% and 25.98% of its total Gross Loan Portfolio (based on location of the Banking Outlet), respectively. e also The Bank is focused on further strengthening presence in newer geographies in addition to existing states where it operates by entering into arrangements with business correspondents (“BCs”) and direct selling agents (“DSAs”) and as of March 31, 2023, we had tie-ups with 13 BCs to source customers and 321 DSAs to grow its asset portfolio.

Utkarsh Small Finance Bank IPO: Financials

Anchor Investors

Utkarsh Small Finance Bank (SFB) allotted sha­res worth Rs. 222 crore to anchor investors. Some investors who got an allotment in the anchor category incl­ude Goldman Sachs, ICICI Prudential Life, Kotak Mahindra, and Aditya Birla Sunlife, Massachusetts Institute of Technology Basic Retirement Plan Trust etc. some of the investors are depicted below:

Utkarsh Small Finance Bank: Risks

• Concentration risk as its significant portion of advances are towards customers located in the states of Bihar, and Uttar Pradesh.
• Microbanking loans carry higher credit risk

Utkarsh Small Finance Bank IPO: Salient Points

• As of March 31, 2023, the RBI has awarded SFB licences to 12 players keeping in with the government’s focus on financial inclusion and inclusive banking.
• SFBs’ target audience is the low-income segment, who can be wooed with a sachet level product suite. Unlike NBFCs, which expand horizontally with a special focus product, such as vehicle loan, microfinance loans or housing finance, SFBs can expand vertically and horizontally offering multiple loan products as well as deposit products.
• Loan portfolio CAGR of approximately 22% between Fiscal 2023 – Fiscal 2025 is expected for SFBs.
• The Bank recorded the third fastest Gross Loan Portfolio growth between Fiscal 2019 and Fiscal 2023 among SFBs with Gross Loan Portfolio of more than ₹ 60 billion. It had the second highest provision coverage ratio among SFBs with Gross Loan Portfolio of more than ₹ 60 billion in Fiscal 2023.
• USFB has registered a healthy growth in its scale since starting operations as a small finance bank (SFB). It witnessed a compound annual growth rate (CAGR) of around 46% in its portfolio during FY2017 to FY2022
• The issue is entirely Fresh Issue of equity shares and the basic purpose is to augment capital.
• There is RBI mandate to list after reaching networth of Rs. 500 cr and the issue is essentially to meet this RBI norm.
• The Bank’s Promoter, Utkarsh CoreInvest Limited, is an NBFC-CIC-NDSI. CIC stands for Core Investment Company in India and CIC’s with asset size of Rs. 100 crore or more are treated as systemically important Core Investment Company (CIC-ND-SI) by RBI. It is is backed by a number of institutional investors including British International Investment PLC (formerly, CDC Group PLC), RBL Bank Limited, International Finance Corporation, NMI Frontier Fund KS, Lok Capital Growth Fund, SIDBI, HDFC Life Insurance Company Limited, HDFC Ergo General Insurance Company Limited, ICICI Prudential Life Insurance Company Limited, Faering Capital India Evolving Fund, Hero Enterprises Partner Ventures, responsAbility Participations Mauritius, Shriram Life Insurance Company Limited, and Aavishkaar Bharat Fund.
• In 2017, RBL Bank acquired a minority stake of ~10% in Utkarsh Micro Finance, which later transformed into Utkarsh Small Finance Bank. This investment was part of RBL Bank’s strategy to expand its presence in the microfinance and small finance bank segments.
• Gross Loan Portfolio has grown from Rs 8415.66 crore end March 2021 to Rs 13957.11 crore end March 2023. The disbursements increased from Rs 5914 crore in FY2021 to Rs 12442.89 crore in FY2023.
• Cost of Funds of the Bank came down from 8.27% in FY2021 to 7.47% in FY2022 and further to 6.96% in FY2023.
• 2/3rd of the Banks loan book comprises microfinance loans, which has a high yield approaching 20% in FY23.
• NIM for the Bank is quite healthy at 9.6%.
• Net NPA has reduced to 0.39%, as of 31.3.23,
• Further in August 2021, bank issued 4.72 crore equity share at an issue price of Rs 31.8 to Bharti Axa Life Insurance Company (2.36 crore equity share), Triodos Sicav II – Triodos Microfinance Fund (1.26 crore equity share), Growth Catalyst Partners LLC (0.31 crore equity share), Harish Engineer (0.35 crore equity share) and ICICI Prudential Life Insurance Company (0.44 crore equity share).
• Utkarsh Small Finance Bank is being offered at price to Adj BV multiple of 1.1 times.
• Among peers, AU Small Finance Bank is trading at P/ Adj BV multiple of 4.8 times, while Ujjivan Small Finance Bank is trading at P/ Adj BV multiple of 2.1 times, Equitas Small Finance Bank at P/ Adj BV multiple of 2.1 times, Bandhan Bank at 2.0 times and Suryoday Small Finance Bank at 1.2 times.
• On FY23 earnings Utkarsh SFB IPO is valued at 6.5x P/E and compares favorably with Peers Suryoday Small Finance Bank PE 23.3x, Equitas Small Finance Bank Ltd 18.2x, Ujjivan Small Finance Bank Ltd 7.5x.
• I intend to apply in Utkarsh Small Finance Bank IPO. In my view there are reasonably good chances of listing gains as well as steady performance there after. However It is worth mentioning that my opinions have many time been off the mark or have been proved wrong.
• This may be first such Bank coming from Hindi heartland, which is a difffficult terrian but has good potential too due to under penetration and has sizeable population.
• GMP as reported on social media has been around Rs. 14-15.
• Please do your own diligence as this IPO as there is good amount of risk in all equity investments including IPOs.

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering & Management . Also Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2) Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors. I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Do check the data from company’s RHP and exchanges before making any decision. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.