Ujjivan Financial Files Prospectus For Small Finance Bank IPO

Ujjivan Financial Services Ltd. has filed a draft red herring prospectus for the listing of its wholly-owned small finance bank. Ujjivan Small Finance Bank will raise Rs 1,200 crore through the initial public offering, the company said in a notification to stock exchanges on Friday.

The decision to list the small finance bank independently of Ujjivan Financial Services stems from a regulatory diktat.

In October 2018, the Reserve Bank of India had clarified to promoters of small finance banks that they must list their banking units separately within three years of operation, in line with the regulator’s licensing requirements. Until now, the holding companies of small finance banks, such as Ujjivan Financial Services Ltd. and Equitas Holdings Ltd. were listed while the actual banking units remained unlisted.

The public offering and eventual listing of Ujjivan Small Finance Bank will make the group compliant with the rules.

For Ujjivan Financial Services, however, the independent listing of the small finance bank could lead to what is termed in market parlance as a ‘holding company discount’.

In a note issued in June, Macquarie Research had noted that the listing of Ujjivan Small Finance Bank will lead to a “dual-listed” structure. “As per RBI’s licencing rules, due date (February 2020) for Ujjivan to list its 100 percent subsidiary small finance bank is fast approaching. The SFB would also have to bring down promoter stake to 40 percent by Feb. 2022. This will create a dual-listed structure, with Ujjivan attracting a material holdco discount,” the research house had said.

Ujjivan Small Finance Bank reported strong earnings for the April-June 2019 quarter. Its assets under management rose 51 percent year-on-year. The small finance bank reported a twofold increase in profit after tax to Rs 94 crore. Net interest income rose 10.8 percent from a year ago to Rs 352.50 crore.