Suryoday SFB IPO: Lender diversifies but asset quality worrying still

It was a purely microfinance bank in 2018, but dependence on such loans fell to 71 per cent in Q3

Suryoday Small Finance Bank’s initial public offering (IPO) opens March 17, launching at a time when the microfinance (MFI) sector is battling bad assets.

The IPO meets regulatory obligations for listing, but the bank’s 2.5x trailing 12-months price-to-book value appears expensive. The bank’s asset quality makes the valuation tricky. At 9.3 per cent proforma gross non-performing assets (NPA) in the December quarter (0.78 per cent recognised by the bank), Suryoday’s pool of bad loans is the highest among listed peers.

Suryoday’s proforma provision coverage ratio at 60 per cent fares better than Ujjivan SFB and Equitas SFB, which are at 56 per