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Equitas Small Finance Bank misses RBI mandate of listing within 3 years

Experts say approval from Sebi may not come through easily as schemes of arrangement similar to the one proposed by Equitas could give room to indirect listing of the subsidiary

“Once we get approval from Sebi on the proposed structure, we shall proceed to the NCLT for implementing the scheme of arrangement” P N Vasudevan MD, Equitas SFB

Equitas Small Finance Bank (SFB), which completed three years of operations on Wednesday, has missed its listing timeline.

While the holding company — Equitas Financial Holdings, which owns 100 per cent stake in Equitas SFB — is a listed entity, the Reserve Bank of India (RBI) rules mandate that the SFB be listed separately within three years of launch of business. Equitas SFB, the first such bank, began operations on September 5, 2016.

The company has been considering a reorganisation of its share capital through a scheme of arrangement under Section 230 read with Section 52 of the Companies Act 2013. The bank has written to the market regulator, the Securities and Exchange Board of India (Sebi), on whether it can pursue the proposed structure.

“We are yet to hear from Sebi on this matter,” said P N Vasudevan, managing director, Equitas SFB. “Once we get approval from Sebi on the proposed structure, we shall proceed to the National Company Law Tribunal for implementing the scheme of arrangement,” said Vasudevan.

However, from the time of approval, it may take about six months for the company to implement the plan. Meanwhile, the holding company has also written to the RBI seeking additional time to list the SFB. It is understood that the RBI too hasn’t reverted to Equitas.

Experts say approval from Sebi may not come through easily as schemes of arrangement similar to the one proposed by Equitas could give room to indirect listing of the subsidiary. “Schemes of arrangement which could tantamount to indirect listing of subsidiaries may not be acceptable to regulators without complying listing regulations,” said a partner of a Mumbai-based law firm. 

Ujjivan Financial Services, the holding company of Ujjivan SFB, also has a corporate structure similar to that of Equitas Financial Holdings. Ujjivan has decided to list its SFB arm by way of an initial public offering (IPO). The company has filed the draft red herring prospectus with Sebi and is expected to list the SFB by January 2020, when the bank completes three years of operations. It is gathered that if Equitas does not get regulatory approval for the proposed scheme of arrangement, Equitas SFB may have to be listed in a similar manner. 

Equitas SFB had an asset base of Rs 12,300 crore and a well-diversified loan book, spilt into loans for small and medium-sized businesses, agriculture, commercial vehicle and microfinance firms. Among peers, Equitas SFB is less dependent on microfinance loans (25 per cent of the total loans) and offers a larger bouquet of loans.