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Business News/ Markets / Ipo/  Capital Small Finance Bank IPO: Planning to invest? 10 key risks you should know before subscribing to the issue
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Capital Small Finance Bank IPO: Planning to invest? 10 key risks you should know before subscribing to the issue

Capital Small Finance Bank IPO has opened for subscription on February 7 and the price band has been fixed is set at ₹445 to ₹468 per equity share.

Indian Renewable Energy Development Agency (IREDA) has filed a draft red herring prospectus with Sebi to float an initial public offering IPO. Photo: iStockphotoPremium
Indian Renewable Energy Development Agency (IREDA) has filed a draft red herring prospectus with Sebi to float an initial public offering IPO. Photo: iStockphoto

Capital Small Finance Bank IPO: The initial public offering (IPO) of Capital Small Finance Bank has opened for subscription on Wednesday, February 7, and will close on February 9. The small finance bank (SFB) has fixed the price band at 445 to 468 per equity share face value of 10 each for the issue.

Capital SFB IPO is a book built issue of 523.07 crore. The issue is a combination of a fresh issue of 0.96 crore shares aggregating to 450.00 crore and an offer for sale (OFS) of 0.16 crore shares aggregating to 73.07 crore, through which promoters and external investors will dilute five per cent of their pre-issue holdings. 

Also Read: Capital Small Finance Bank's 523 crore IPO opens: 10 key things to know

The minimum lot size for an application is 32 shares and in multiples thereof. The minimum amount of investment required by retail investors is 14,976. The bank has reserved not more than 50 per cent of the issue for qualified institutional buyers, not less than 35 per cent of the issue for retail investors, and not less than 15 per cent for non-institutional investors (NII).

The promoters of the bank are Sarvjit Singh Samra, Amarjit Singh Samra, Navneet Kaur Samra, Surinder Kaur Samra, and Dinesh Gupta. Nuvama Wealth Management Limited, Dam Capital Advisors Ltd (Formerly IDFC Securities Ltd), and Equirus Capital Private Limited are the book-running lead managers of the Capital SFB IPO, while Link Intime India Private Ltd is the registrar for the issue.

The bank has raised 157 crore from anchor investors a day ahead of its IPO subscription opening for bidding. 33.53 lakh equity shares were allocated to 19 funds at 468 apiece, which is also the upper end of the price band.

The allotment for the Capital SFB IPO is expected to be finalised on Monday, February 12, 2024. Capital SFB IPO will list on BSE, and NSE with the tentative listing date fixed as Wednesday, February 14, 2024.

The Jalandhar-based bank, which began operations in 2016 after converting itself from a local area bank, is 24 per cent owned by the promoter family led by Sarvjit Singh Samra and his family. In 2015, Capital SFB became the first non-NBFC microfinance entity to receive the SFB license. 

Also Read: Capital Small Finance Bank IPO: Bank mobilises 157 crore from anchor investors ahead of issue

As of June 30, 2023, Capital Small Finance Bank had a presence in five states and one union territory, with a total of 172 branches and 174 ATMs. Capital Small Finance Bank Limited's revenue increased by 14.72 per cent year-on-year (YoY) and profit after tax (PAT) rose by 49.59 per cent YoY in FY23.

Here are some of the key risks listed by the company in its Red-Herring Prospectus (RHP):

Capital Small Finance Bank IPO- 10 Key Risks

-The bank has settled a matter with the capital market regulator Securities and Exchange Board of India (SEBI) in the past in connection with the allotment of equity shares to more than 49 investors. In 2004-05, the bank made certain allotments that were not considered in compliance with the then-applicable laws relating to the issuance and allotment of securities.

-The bank has certain contingent liabilities, including guarantees given by it on behalf of our customers in India which constituted 81.14 per cent of the total contingent liabilities of the bank as of September 30, 2023. If these contingent liabilities materialise, the bank's financial condition, cash flows, and results of operations may be adversely impacted.

The bank has been subject to inspections by the Reserve Bank of India (RBI). RBI has observed various non-compliances by the bank in the ordinary course in the past and has required it to, among other things, take corrective actions. Non-compliance with the observations issued by RBI could adversely affect its business, financial condition, results of operations, and cash flows.

Also Read: IPOs on February 7: 4 mainboard issues available for subscription, 1 SME to get listed

-The bank will not receive any proceeds from the OFS. It proposes to utilize the net proceeds from the fresh issue towards augmenting tier –I capital base and meeting expenses. Each of the selling shareholders will be entitled to their respective portion of the proceeds from the OFS in proportion to the shares offered by the respective shareholders.

-The bank's current Statutory Auditors, T R Chadha & Co., LLP, Chartered Accountants, have been found ineligible by the RBI for undertaking the audit activities for the Financial Year 2024 of the bank. RBI, vide email dated September 13, 2023, has directed the bank to recommend the name of another firm meeting the eligibility criteria.

-The bank derives a significant portion of its revenue from the lending business and any adverse developments in the lending business could adversely affect its business, financial condition, cash flows, and results of operations. Given the industry the bank operates in, a majority of its revenue is derived from interest earned, and discounts on advances/bills. 

-Some of the bank's corporate records and filings are not traceable. The bank cannot assure that regulatory proceedings/actions will not be initiated against it in the future and that it will not be subject to any penalty imposed by the competent regulatory authority in this regard. The bank is unable to trace the form filings made to RoC including form 2, shareholders’ resolution, and the proof of payment for allotments dated January 12, 2000, of 5,992,000 shares.

-The bank has experienced negative cash flows from operations in the recent past. Particularly, the cash used in operating activities for fiscals ended 2023, 2022, and 2021, was negative mainly on account of an increase in advances, increase in investments, and payment of direct taxes. Any negative cash flows from operations in the future could adversely affect its results and financial condition.

-The bank has, in the past, entered into related party transactions which include borrowings payable to KMPs and their relatives, deposits held by KMPs/ their relatives, and advances to KMPs/their relatives, and may continue to enter into such related party transactions in the future, which may potentially involve conflicts of interest with the equity shareholders.

-As of six months ended September 30, 2023, and fiscals ended March 31, 2023, the bank's gross NPAs as a percentage of gross advances were 2.73 per cent and 2.77 per cent, and its provision coverage ratio was 50.96 per cent and 51.48 per cent respectively. If the bank is unable to control the level of NPAs or is unable to improve its provision coverage as a percentage of gross NPAs, the bank's business, financial condition, and cash flows could be adversely affected.

 

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ABOUT THE AUTHOR
Nikita Prasad
Nikita covers business news and has been producing news on digital platforms since 2018. She writes on economy, policy, markets, commodities, industry. Her core areas of interests include infrastructure, energy, oil and gas, railways, and transport/mobility. She has worked for business news channels like Moneycontrol, NDTV Profit, and Financial Express in the past. If you have story ideas/pitches/reports or quotes/views to share, reach her at nikita.prasad@htdigital.in.
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Published: 07 Feb 2024, 06:16 AM IST
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