Will look at reverse merger if viable to shareholders: Utkarsh SFB MD & CEO

Utkarsh Small Finance Bank is scheduled to list on the exchanges on Friday. Govind Singh, managing director and chief executive officer of the bank, in an interaction with Manojit Saha for the Business Standard’s Banking Show, says that the capital raise will improve the capital adequacy ratio of the bank by 3-4 percentage points. Edited excerpts.

You have raised funds through a public issue even if you have a healthy capital adequacy ratio of 20 per cent. What was the reason for raising capital? Is it because of regulatory requirements?

Both are possible reasons. One being the Reserve Bank of India (RBI) expects that we should list the bank and it should be widely held. Also, we would be comfortable with an 18-20 per cent capital adequacy ratio all the time because we are a growing bank, and that the growth percentage will be higher going ahead because of low base. Secondly, whenever there is a shock because of challenges, slightly higher capital is always good in such scenarios. This capital will take care of our growth for the next 18-21 months. Our capital adequacy ratio will go up by 3-4 percentage points.

The issue size of the IPO (initial public offering) was reduced by 63 per cent and there was no offer for sale. What was the reason for that?

We had raised Rs 150 crore last year. With Rs 500 crore now, this takes care of my Tier-1 capital requirement. We have long term investors and the idea was to list the bank first, see for some time, and then see what are the processes to exit. Because we do not have any individual investors, it is the holding company which is held by various investors who are not keen to exit now. They want to see the performance of the bank first.

We have a two-tier structure. We have a holding company – the promoter of the bank, they currently hold around 84 per cent. After the IPO, it will come below 73 per cent. Utkarsh CoreInvest Ltd, the promoter of the bank, has a well-diversified shareholding pattern.

Is there a possibility of a reverse merger of the bank and the holding company?

There are discussions on that. It is difficult to predict today. If the regulator permits, and it is found to be feasible on an overall basis, and viable for all the stakeholders, the bank would certainly look at such an option also.

Is there a plan to convert into a universal bank?

It is very difficult to predict today. But you look at the expression, yes. We will not be in a hurry. After going public, we need to grow, consolidate, we also need to see what happens to our holding company. We are not in a hurry to get a universal banking license but whenever the opportune time comes, we will be more than happy to become a universal bank, subject to the RBI’s blessings for such a request.  

The size of the loan book of the bank is Rs 14,000 crore. What is the share of micro loans in the total loan?

Micro loan share is 65 per cent, or close to Rs 9,000 crore. Despite being a bank, we are seeing good growth in micro loans also. In terms of percentage, others are taking over.

Going ahead, do you want to de-risk the balance sheet and reduce the proportion of micro loans?

If you see our trajectory for the last few years, every year we are seeing an increase in our non-MFI book by 5-6 per cent. It looks like the same trajectory will continue for some time. So, the share of micro loans will certainly come down. 

During the last six years, we have created new verticals like MSME, affordable housing, and small corporates. They are seeing much better growth now.