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

At a time when microfinance institutions (MFIs) are facing pressure on asset quality, and political instability in Assam that has a bearing on their collections, one wonders whether the initial public offering (IPO) of Suryoday Small Finance Bank (Suryoday SFB) has been timed well. The IPO is more to meet regulatory listing obligations. From that standpoint, 2.5x trailing 12-month price-to-book value appears expensive.

What makes the valuation more unattractive are asset quality issues at the bank. At 9.3 per cent proforma gross non-performing assets (NPAs) in the December quarter (Q3) (only 0.78 per cent recognised by the bank), Suryoday’s pool