Disha Microfin plans to raise Rs300 cr to restructure ownership

According to RBI norms, foreign shareholders can own only up to 49% of small finance banks


Rajeev Yadav, group CEO at Fincare Business Services, the parent firm of Disha Microfin. Photo: Aniruddha Chowdhury/Mint
Rajeev Yadav, group CEO at Fincare Business Services, the parent firm of Disha Microfin. Photo: Aniruddha Chowdhury/Mint

Small finance bank (SFB) licensee Disha Microfin Pvt. Ltd is planning to raise about Rs.300 crore to restructure its ownership in order to comply with the Reserve Bank of India’s (RBI) norms for foreign shareholding, said a senior executive.

According to the central bank’s norms, foreign shareholders can own only up to 49% of SFBs. Disha is currently majority owned by private equity fund India Value Fund Advisors (IVFA), which holds a 74% stake in the company through its Mauritius registered entity—Indium IV (Mauritius) Holding Ltd.

“We are looking at raising around Rs.300 crore and we have hired an investment bank for the same. The fund raise will involve both a domestic component as well as a foreign component,” said Rajeev Yadav, group chief executive officer at Fincare Business Services Pvt. Ltd, the parent firm of Disha Microfin, on the sidelines of Mint’s Annual Banking Conclave on Thursday.

The domestic and foreign fund raising will be equally spilt at around Rs.150 crore each, he said.

The firm is looking at an entirely fresh issue of shares to bring down IVFA’s shareholding, as the fund is not selling any part of its stake right now. “IVFA plans to continue to be part of the journey and they are not looking at an exit,” said Yadav.

Fincare Business Services is a holding company operating a clutch of businesses that provides financial services and products targeting bottom-of-the-pyramid customers and manages more than Rs.1,000 crore of assets, according to the firm’s website. “The firm is also undertaking a restructuring exercise wherein different companies operating under the platform will all be merged into Disha, which has won the small finance bank licence,” said Yadav.

As of 31 March, Disha’s loan book stood at Rs.207 crore. In the financial year 2014-15, Disha’s revenue almost doubled to Rs.53 crore from Rs.29.2 crore in the previous year. In 2014-15, its profit grew almost three times to Rs.6.9 crore.

While Disha is working on private fund raising to restructure its ownership, its larger peers Equitas Holdings Ltd and Ujjivan Financial Services Ltd are working on initial public offerings (IPO) to bring down their foreign ownership within the norms laid out by RBI.

Equitas is looking to raise around Rs.2,000 crore, while Ujjivan plans to raise about Rs.1,500 crore. Both the firms have filed draft papers for their IPO with markets regulator Securities and Exchange Board of India. On Saturday, Mint reported that Ujjivan is in talks to raise Rs.400-450 crore ahead of its proposed IPO.

While Equitas has received the regulator’s approval, Ujjivan is still waiting for the go-ahead.

Other firms that have received in-principle approval from RBI to set up SFBs include Janalakshmi Financial Services Pvt. Ltd, Au Financiers (India) Ltd, Capital Local Area Bank Ltd, ESAF Microfinance and Investments Pvt. Ltd, RGVN (North East) Microfinance Ltd, Suryoday Micro Finance Pvt. Ltd, and Utkarsh Micro Finance Pvt. Ltd.

SFB will offer basic banking services, accepting deposits and lending to unbanked and underserved sections including small business units, small and marginal farmers, micro and small industries, and entities in the unorganized sector.

SFBs and microfinance institutions are expected to raise as much as Rs.4,000-5,000 crore over the next 12 months, either through the public markets or private equity, according to a September report by investment bank Avendus Capital.

Some experts believe that domestic investors will be keen to snap up shares offered by these firms given the strong growth that the microfinance sector has posted in recent years.

“Domestic investors have warmed up to the sector in the recent years. One of the biggest attractions is that these firms have displayed strong topline growth, while also maintaining extremely low levels of non-performing assets, as compared to larger commercial banks,” said Khushroo Panthaky, partner at auditing firm Walker Chandiok and Co. Llp

According to a June report by Microfinance Institutions Network (MFIN), a microfinance industry body, the gross loan portfolio of microfinance institutions has grown at a compounded annual growth rate of 34% in the over the last three financial years to Rs.40,138 crore as of 31 March 2015.