FINCARE SMALL FINANCE BANK LIMITED IPO
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Fincare Small Finance Bank is a "digital-first" SFB with a focus on unbanked and under-banked customer segments, especially in rural and semi-urban areas. Among comparable SFB peers in India, the company had the second highest deposit growth over Fiscal 2020 to Fiscal 2022, at a CAGR of 46.7% (Source: CRISIL Report). Further, from Fiscal 2019 to Fiscal 2022, it had the second highest average ROA and ROE (adjusted for COVID-19 provisions) among SFBs and was one of India's most profitable SFBs, based on ROA and ROE (Source: CRISIL Report).Fincare Small Finance Bank 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 company’s business objective is to enhance access to savings, credit and other financial products for unbanked and under-banked individuals, MSMEs and unorganized entities, especially in rural areas, by leveraging technology and last-mile distribution. The company’s "digital first" approach supports its extensive physical network and focuses on technology-led operations across all aspects of its banking operations.
Shareholding (%) | Pre IPO |
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Promoter and Promoter Group | 78.58% |
Public | 21.42% |
Share Reservation | Net Issue (%) |
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QIB | 50% |
NII | 15% |
Retail | 35% |
Company Leadership | |
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Pramod Kabra | Part-time Chairman and Non-Executive Directo |
Rajeev Yadav | MD & CEO |
Keyur Doshi | CFO |
Issue Managers | |
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BRLMs | IIFL Securities, Axis Capital Limited, ICICI Securities Limited, SBI Capital Markets Limited, Ambit Private Limited |
Registrar | KFin Technologies Private Limited |
This document summarizes a few key points related to the issue and should not be treated as a comprehensive summary. Investors are requested to refer the Red Herring Prospectus for further details regarding the issue, the issuer company and the risk factors before taking any investment decision. Please note that investment in securities is subject to risks including loss of principal amount and past performance is not indicative of future performance. Nothing herein constitutes an offer of securities for sale in any jurisdiction where it is unlawful to do so. This document is not intended to be an advertisement and does not constitute an invitation or form any part of any issue for sale or solicitation of an offer to subscribe for or purchase any securities and neither this document nor anything contained herein shall form the basis for any contract or commitment whatsoever
The Offer comprises of a Fresh Issue and an Offer for Sale. The Fresh Issue aggregates up to ₹6,250 million while the offer for sale is of Up to 17,000,000 Equity Shares. The Net Proceeds are proposed to be utilized towards augmentation of the Bank’s Tier-I capital base to meet its future capital requirements.
The interest earned by the company has increased from ₹10,702.56 million in Fiscal 2020 to ₹14,458.72 million in Fiscal 2022. The company’s EBITDA decreased from ₹2,196.29 million in Fiscal 2020 to ₹258.64 million in Fiscal 2022. Its PAT also decreased from ₹1,434.49 million in Fiscal 2020 to ₹88.71 million in Fiscal 2022.
(`₹ in millions) | FY20 | FY21 | FY22 |
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Interest Earned | 10,702.56 | 12,510.31 | 14,458.72 |
EBITDA | 2,196.29 | 1,634.28 | 258.64 |
Net profit for the year | 1,434.49 | 1,131.39 | 88.71 |
EPS (₹) | 7.03 | 5.55 | 0.38 |
ROE | 18.41% | 11.55% | 0.72% |
Fincare Small Finance Bank follows a customer-centric business model, focused on financial inclusion. It aims to provide individuals and businesses with affordable financial products and services that meet their needs. The company is a "digital-first" bank and has been an early adopter of scalable digital solutions in order to improve customer experience and/or operational efficiencies. The company uses a combination of proprietary and third-party digital solutions, with the aim of developing in-house digital solutions that are core to its business and buying those that are commoditized or non-core to its business. It has implemented automation across a number of areas including: (i) business intelligence and analytics, (ii) compliance, (iii) credit quality monitoring, (iv) document management, (v) internal and external process and service requests, (vi) human resource management, including payroll, leave, performance management and training, (vii) sales and marketing activities, (viii) tablet based customer onboarding, account opening and account servicing, and (ix) payments.
Financial inclusion is at the core of Fincare Small Finance Bank’s business and its objective is to enhance access to products such as savings accounts, microloans, loans against gold, insurance and investment products for unbanked and under-banked individuals, MSMEs and unorganized entities through high-tech, low-cost operations. As a majority of its customers are individuals from low-income groups and lack financial sophistication, the company has designed its products in a manner such that they are simple to understand, which contributes to their popularity with customers. Further, it has a deep rural franchise and experience of over 15 years in microfinance. As of March 31, 2022, the company covered 48,542 villages, with 2,391,850 base-of-pyramid households and 2,352,093 rural savings accounts. Through this extensive rural network, as of March 31, 2022, 93.44% of its customers were in rural areas. In rural areas, its key competitive differentiator is that it provides loan products covering the full lifecycle of rural customers, delivered using digital tools. In this regard, the company has continuously expanded its product suite to meet additional financial needs of its customers, through products such as rural loans against property, loans against gold, two-wheeler loans, and savings products. These products are tailor-made to address the needs of its customer base.
Fincare Small Finance Bank reaches its customers through a diversified, extensive multi-channel network combining traditional brick-and-mortar banking outlets and digital banking. This allows it to offer "last mile, doorstep connectivity" to its customers while maintaining low operating costs. As of March 31, 2022, it had a pan-India network of 919 banking outlets (including 246 business correspondent outlets) and 125 ATMs of which 90 were cash recyclers, spread across 14 states and three union territories, covering 255 districts, which together covered over 48,542 villages and reached 3.26 million customers. As of Fiscal 2022, the company was one of the two SFBs in India with the highest number of banking outlets (Source: CRISIL Report). Its banking outlets are either operated by the company or by business correspondents appointed by it, which provide it with a low-cost means of extending the company’s distribution reach. Its extensive distribution network provides it with meaningful geographic diversification in its deposit and loan portfolio.
In Fiscal 2018, Fincare Small Finance Bank commenced small finance bank operations, which provided it with access to a low-cost deposit base and also allowed it to expand the scope of its lending operations. The company’s deposit products include term deposits, recurring deposits and CASA. As of March 31, 2022, it had 4.03 million deposit accounts (including 0.24 million 101 accounts), representing a CAGR of 442.30% since March 31, 2020, covering both existing microloan customers and new-to-bank customers, especially in urban areas. As of March 31, 2022, it had 2.85 million deposit customers, representing a CAGR of 14.01% since March 31, 2018.In Fiscal 2022, the company had the second-highest deposit growth among its SFB peers and the third highest ratio of retail deposits to total deposits (Source: CRISIL Report). Its total retail deposits (including retail term deposits and CASA) as of March 31, 2020, 2021 and 2022 were ₹ 35,789.27 million, ₹ 46,423.80 million and ₹ 53,011.00 million, respectively. Through its efforts, its credit-to deposit ratio improved from 103.47% to 109.00% and its CASA ratio improved from 11.93% to 36.30%, in the period between March 31, 2020 and March 31, 2022.
Fincare Small Finance Bank follows robust risk management policies, which aim to maintain healthy asset quality and low credit costs for the company. It recognizes risk management as an integral part of its business and management practices. The company has formulated its risk management policy taking into account, among others, the practices and principles governing risk management prescribed by the RBI. The company has certain key risk mitigation policies in place for various types of risk:
While Fincare Small Finance Bank will continue to pursue opportunities to grow its microloan portfolio, its focus is now also on scaling up its other lending products. Secured products would allow the company to build a more diversified lending portfolio. Its loans against property, loans against gold, two-wheeler loans, affordable housing loans and institutional finance loans are all secured loans, as compared to microloans, which are traditionally unsecured. Fincare Small Finance Bank intends to scale up its mix of these products by introducing them at banking outlets that have not historically offered them, through improved productivity at its existing banking outlets as well as through the addition of new banking outlets. The company also intends to focus on crossselling its capabilities to existing and new customers going forward, with the objective of expanding its business. A significant portion of its asset customers opt to open savings accounts with the company for new disbursements, which provides it with opportunities to cross-sell deposit products to them. Further, the company intends to cross-sell additional loans such as two-wheeler loans, loans against gold and loans against property to its existing borrowers who have demonstrated good repayment histories and require higher ticket loans. Further, the company may also offer loans in other categories such as supply chain financing and commercial vehicle loans to borrowers falling within this category. It also intends to broaden its sale of fee-based products.
Fincare Small Finance Bank is focused on diversifying its liability profile, particularly through building a stronger CASA and retail term deposit franchise. The company is focused on CASA and retail term deposits as they are, typically, lower cost funding sources than bulk deposits and other, non-deposit-based, sources of funding, such as refinancing, interbank borrowing, securitizations and the issuance of debt securities. The company intends to take a multi-pronged approach to source more CASA and retail term deposits, in part through an emphasis on mobile banking to encourage customer loyalty and crossover into these products. To this end, it aims to introduce short-term loyalty programs, such as providing cash back offers to customers who use their debit cards more often; encouraging customers to maintain higher balances and also use their accounts for purposes such as recurring bill payments
While Fincare Small Finance Bank has a robust digital platform today, the company intends to continue investing in digital offerings that are scalable, improve customer experience and improve its profitability. Its digital strategy has many facets, including further scaling up cashless banking, deepening automation and analytics capabilities and incentivizing the use of digital channels. The company is pursuing a number of initiatives to deepen its automation and analytics capabilities. The company intends to use data analytics to help identify potential new product segments that may be popular amongst its target customer segments, and to promote cross-selling opportunities. It also intends to use data analytics to provide early warning signals for customers at risk of nonrenewal in order to improve customer retention, and to use predictive analytics based on GST payments and client income to further enable loan sanctioning to first time SME borrowers. The company also intends to introduce new algorithms for automated underwriting decisions and alternate-data-based underwriting. Further, Fincare Small Finance Bank is pursuing automation of areas that can have the greatest impact on its customers or its costs, such as low value customer interactions and backend processes.
Fincare Small Finance Bank intends to enhance the utilization of its existing banking outlets, in order to add loans and deposits without having to make significant further investments in these outlets. To do this, the company intends to optimize the size, number of centers and geographical coverage of its micro banking outlets, establish well-defined geographical limits of operations, implement productivity and other automation tools, roll out loan products to banking outlets that do not currently offer them, and train and empower staff engaged in customer-facing roles to improve sales and service understanding. With a view to enhancing productivity of its banking outlets, the company aims to increase the contribution of liabilities from urban and semi-urban centers to target the urban poor, providing them remittance and payment services in addition to deposit accounts. On the assets side, it intends to source additional customers for its microloans, two-wheeler loans and loans against property, largely in geographies where it currently does not operate, through its business correspondent partners. In addition to increasing banking outlet utilization, it intends to further expand its network of banking outlets, focusing particularly on its existing geographies and those adjacent to them, whether rural or semi-urban, though also selectively expanding in key markets to source deposits.
Fincare Small Finance Bank seeks to leverage and enhance its brand to build its presence in the banking sector and enhance customer trust and recognition. The company seeks to build its brand by maintaining official social media pages on popular sites; regularly posting on those platforms about updates and new initiatives; leveraging its brand ambassador Chess Grandmaster Viswanathan Anand for online and offline marketing campaigns; conducting customer events; conducting marketing through TV, radio and print ads; and marketing through brand associations and event sponsorships.
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 is currently associated with True North Managers LLP.
He holds a bachelor’s degree in technology from the Indian Institute ofTechnology, 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.
He has a Bachelor’s degree in science (mathematics) from Maharaja Sayajirao University, Baroda and Master’s in business administration from University of Pune. He is one of the founders of the company. He was previously a partner at Disha Support Services.