Equitas Holdings plans to go for IPO of small finance bank arm

Equitas Holdings (EHL), the promoter of Equitas Small Finance Bank (ESFB), will be initiating steps to issue an initial public offering (IPO) of the bank with the aim to list the shares by March 2020.
 
Earlier, its request for approval of a scheme of arrangement to list the bank’s shares without an IPO was returned by the Securities and Exchange Board of India (Sebi).
 
The market regulator returned the company’s draft scheme with an advise to re-submit the application after ensuring compliance with provisions mentioned in the Sebi circular.
 
Under the scheme of arrangement, which was approved by both the boards of EHL and ESFB, the latter would have to capitalise its free reserves and issue shares of the bank to the shareholders of EHL without cash consideration, in proportion to their holding in EHL.
 
Following this, the company informed the exchanges that, “ESFB will initiate necessary steps to list its shares through an IPO, which is expected to be completed by March 2020 under normal circumstances.”
 
The company had informed investors that the bank will be listed by March, 2020, either through the scheme of arrangement it is pursuing with the market regulator or through an IPO.

Story so far

• The lender had informed investors that it will be listed by March 2020
• The RBI last week refused to extend the SFB's listing deadline and barred it from opening new branches
• The regulator also froze the pay of MD and CEO Vasudevan P N

 
Last week, the the Reserve Bank of India (RBI) refused to extend the listing deadline for ESFB and barred it from opening new branches till further orders. This is because it had not complied with the regulatory condition stipulated during the issuance of licence, that it should be listed within a timeframe.
 
The company said RBI’s direction that ESFB cannot open new branches will not have implications in the short term.
 
Under the scheme of arrangement, which was approved by both the boards of EHL and ESFB, the bank would have to capitalise its free reserves.
 
It would have to issue shares of the bank to EHL shareholders without cash consideration, in proportion to their holding in EHL.
 
The bank needs to write to the RBI for a reverse merger at the end of five years, which is by September 2021.
 
The RBI will take a decision after that depending upon the regulatory comfort at that point in time.
 
ESFB currently has over 600 asset branches and set up around 400 liability branches. This would give it room to sustain growth over the next two years. The bank has to grow per-branch productivity. It is expecting that there would not be any material impact on growth for a couple of years due to this.
 
RBI rules mandate that an SFB must be listed within three years of reaching Rs 500-crore net worth.
 
Further, restrictions may be imposed if the bank fails to make “satisfactory progress towards listing of its share,” said the RBI. ESFB began operations on September 5, 2016.