Proposed small finance banks scurry to raise funds

As the entities given licences to establish small finance banks (SFBs) scurry to beat the Reserve Bank of India (RBI) deadline of April 2017, equity fund raising has picked up.

In September 2015, RBI had granted in-principle licences to set up 10 SFBs. Jalandhar-based Capital Local Area Bank could be the first to start operation. It has sent the required documents for final regulatory approval to RBI and set April 13 as the deadline for starting operations.

The bank has already raised Rs 17.3 crore through a rights issue, and is looking for further capitalisation before May, said Sarvjit Singh Samra, managing director.

ESAF Microfinance, which also has an in-principle licence to start an SFB, plans to raise Rs 100 crore through a rights issue. It is also looking to raise close to Rs 200 crore through private placement of equity with foreign investors, "subsequently, for expansion", said K Paul Thomas, chairman. Disha Microfinance has readied plans to raise about Rs 300 crore of domestic equity over the next two months, via private placement, said Rajeev Yadav, group director.

SMALL WONDER

• As the entities given licences to establish as small finance banks scurry to beat the Reserve Bank of India deadline of April 2017, equity fund raising has picked up

• In September 2015, RBI had granted in-principle licences to set up 10 SFBs

• Jalandhar-based Capital Local Area Bank could be the first to start operation

• It has sent the required documents for final regulatory approval to RBI and set April 13 this year as the deadline for starting operations

• APMC Acts should be modified to support a well-functioning system of contract farming

• Special attention should be given to Eastern and NE states as farmersbe given to Eastern and NE states as farmers

Ujjivan Financial Services, a Bengaluru-based micro-finance entity, has already raised about Rs 300 crore through a pre-Initial Public Offering (IPO) placement. It has filed a draft prospectus for one up to Rs 650 crore. Equitas Holdings is also planning to raise close to 1,200 crore through an IPO.

SFBs are required to raise a substantial amount of the needed domestic capital before launch. At present, almost all have foreign shareholding, mostly from private equity funds.

According to RBI norms, the initial promoter stake should not be less than 40 per cent, locked in for five years, with domestic shareholding of at least 51 per cent.

Business Standard, New Delhi, 23rd February 2016

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