Weak economic outlook to give small finance banks more time to get listed

Four SFBs – Utkarsh, Fincare, Suryoday and ESAF are due for listing over the next 15 months.
Amid weak economic outlook and grim equity market conditions, small finance banks (SFBs) that are mandated to get listed in the next 12-18 months may get some leeway from the Reserve Bank of India (RBI).

“The relaxation could be on a case-to-case basis given the unprecedented business disruption due to the lockdown after the coronavirus epidemic,” said a senior official aware of the development. However, the dispensation may be availed of only by SFBs due for listing in the next five quarters.

“This dispensation may only be a one-time leeway as listing requirements according to licensing norms are unlikely to be modified,” said a source. The banking regulator mandates that SFBs must get listed within three years of their net worth reaching Rs 500 crore.

A few days back, the market regulator, the Securities and Exchange Board of India (Sebi), extended the validity of regulatory approval for launching initial public offerings (IPOs) by six months in light of the coronavirus outbreak.

Four SFBs — Utkarsh, Fincare, Suryoday and ESAF — are due for listing over the next 15 months. Equitas SFB, which missed its earlier listing deadline of September 2019, sought additional time till March 2020. It filed the draft red herring prospectus (DRHP) in December 2019.

Given the present situation, industry sources say it would be very challenging for SFBs to hit the market in the near future. “Our business had almost come to a standstill for a month and we have just started focusing on restoring normal operations,” said the chief executive officer of an SFB who did not want to be named.

“We need to get our business back in shape before we can think of an IPO,” said another top executive of an SFB who feels that valuations may take a huge knock if banks were to consider an IPO in the current market condition.

According to the licensing norms issued in 2016, it is mandatory for SFBs to be listed within three years after their net worth touches Rs 500 crore. SFBs with a net worth below that can also get listed voluntarily. Apart from Equitas SFB, ESAF too filed its DRHP in January 2020. The bank has time till July 2021 to hit the market as its net worth touched the Rs 500 crore-mark only in July 2018.

Suryoday SFB is due to hit the bourses by March 2021. Utkarsh SFB has time till June 2021 to go public, and the case is similar for Fincare. So far, Ujjivan is the only SFB to hit the bourses in December 2019. AU SFB had got listed in 2017, much ahead of the deadline.

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