EQUITAS SMALL FINANCE BANK (SFB)

Equitas Small Finance Bank is the largest SFB in India in terms of the number of banking outlets, and the second-largest SFB in India in terms of assets under management and total deposits in Fiscal 2019. They have a market share of 16% in terms of Assets Under Management in India. It is a subsidiary of Equitas Holding Limited (EHL).

IPO season continues with the 12th IPO post lockdown this year. IPO subscription starts from Oct 20, 2020, till Oct 22, 2020. The IPO price range is from Rs. 32 to Rs. 33 per share. The minimum market lot is 450 shares and in multiples thereof. At the upper price band, the subscription amount for 1 lot is Rs. 14,850. The shares are expected to list on Nov 2, 2020.


We already had a detailed discussion regarding the IPO in our video on YouTube. Here, are some additional points that we need to know about the bank.

SWOT Analysis of the bank:

Litigations against the bank:

Although no major litigation cases are pending against the bank, we found that RBI has taken action against the Bank on multiple occasions.

  1. In 2016, Bank received final approval to carry out SFB business, subject to a condition to listing the bank within 3 years as per para 6 of the SFB Licensing Guidelines. In 2019, RBI found that the Bank violated the timeline so given in the above-mentioned para and imposed regulatory actions on the Bank with immediate effect. Accordingly, Bank was not permitted to open any new branches till further advice, and the remuneration of MD and CEO stood frozen at the existing level until the listing is done.
  2. In 2018, Bank had violated the SFB Licensing Guidelines and provisions of the Banking Regulation Act by distributing mutual fund units, pension products, insurance products, and other such financial products/services on a non-risk sharing basis without taking prior approval of the RBI, as required under the SFB Licensing Guidelines. RBI levied a penalty of Rs. 1.00 million on our Bank for such omission.
  3. Again in 2019, Bank increased its Authorized Capital without seeking exemption from RBI. The Rule - section 12(1)(i) of Banking Regulation Act - banking company can carry on business in India subject to the condition that the subscribed capital of the company is not less than one-half of its authorized capital, and the paid-up capital of the company is not less than one-half of its subscribed capital. On January 31, 2019, the bank increased the authorized share capital from Rs. 11,550 million to Rs.25,000 million by passing a resolution, when it had a paid-up capital of Rs. 10,059.4 million. So, the Bank violated the rules. RBI through its letter to the bank noted with serious concern that the Bank had neither noticed non-compliance with the provisions nor sought exemption from the RBI. RBI further advised the bank to be more careful in the future. Finally, on Nov 07, 2019, the bank reduced its authorized capital to 17,000 million to comply with the provisions.

The point here is, this highlights a weak compliance team of the bank. In the future, it might lead to the risk of unnecessary penalties due to non-compliance with RBI norms.
If you want to know whether I am applying to the IPO or not, check my Instagram Live at 12 noon on Oct 22, 2020.