AU Financiers Ltd, one of the 10 firms to receive an in-principle approval to start a small finance bank, is planning a share sale next year, said a top executive.
The initial public offer will be a pure offer for sale and the firm will float the issue after it becomes a small finance bank by February, said Sanjay Agarwal, its managing director.
Currently, the firm is waiting for the final approval from the Reserve Bank of India.
The company recently reduced its foreign holding to 49% after Kedaara Capital, ChyrsCapital Investment Advisors India Pvt Ltd, International Finance Corporation and Warburg Pincus partly exited the company, while Motilal Oswal Private Equity made a complete exit.
AU expects to meet its funding requirements by way of raising deposits. It is targeting Rs10,000 crore deposits in the first year of its operations on back of a strong consumer base, said Agarwal.
At the end of fiscal 2016, AU had assets under management of Rs8,221 crore, up 47.6% from a year ago, according to its annual report. It had a diversified fund base with securitization accounting for 35% of its funding needs in fiscal 2016, followed by debentures (28%) and bank/financial institution loans.
Raising deposits will be crucial as it will help the firm lower its cost of funding. Except Capital Small Finance Bank (formerly known as Capital Local Area Bank), no other small finance bank licence holder has a deposit base.
Equitas Small Finance Bank and Ujjivan Financial Services have raised Rs2,176 crore and Rs885 crore, respectively, through new share sales.
“Small finance banks have to be competitive in order to attract saving accounts. Deployment of technology and consumer acquisition strategy will decide the duration of profitability,” said Naresh Makhijani, partner and head of financial services, KPMG.
So far, only Capital Small Finance Bank and Equitas Small Finance Bank have started operations.
AU currently has 298 branches spread across Rajasthan, Gujarat and Maharashtra and it proposes to increase this to 400 by March 2018, Agarwal said. For new regions such as Chennai, Kolkata, Hyderabad and Bengaluru, it plans to work with business correspondents, he added.
“Our focus will be on small and medium enterprise and vehicle loans segment primarily, where the majority of our portfolio will be invested,” said Sanjay Agarwal, managing director of AU Financiers. Vehicle loans currently comprise half the company’s assets under management.
RBI gave in-principle licence to 10 entities to set up small finance banks by March 2017. Disha Microfin Pvt. Ltd, Ujjivan Financial Services, Janalakshmi Financial Services Ltd, AU Financiers (India) Ltd, ESAF Microfinance and Investments Pvt Ltd, RGVN (North East) Microfinance Ltd, Suryoday Microfinance Pvt Ltd and Utkarsh Micro Finance Pvt Ltd are all in various stages of readiness for their small finance banks.