INTERVIEW:Capital Small Fin Bank to refile for IPO soon, says MD Samra

INTERVIEW:Capital Small Fin Bank to refile for IPO soon, says MD Samra

Informist, Tuesday, Jun 20, 2023


--Capital Small Fin Bank MD: To soon refile draft prospectus for IPO

--Capital Small Fin Bank MD: To apply for forex trading licence soon

--Capital Small Fin Bank MD: To open 20 new branches in FY24

--Capital Small Fin Bank MD: Expect business to grow 24-28% in FY24

--Capital Small Fin Bank MD: Expect loans to grow 30% in FY24

--Capital Small Fin Bank MD: Expect deposits to grow 20% in FY24


By Kshipra Petkar and Richard Fargose


MUMBAI – Capital Small Finance Bank is likely to soon refile its draft red herring prospectus for an initial public offering with the Securities and Exchange Board of India, according to Managing Director and Chief Executive Officer Sarvjit Singh Samra.


"I cannot comment firmly on this because the decision is yet to be taken by the board, but if we feel that it is the right time, then we will go for it," Samra told Informist in an interview.


The lender's IPO committee is holding discussions on the matter and the bank will take a decision by the end of the month.


The small finance bank had received SEBI's approval for an initial public offering in February 2022, but did not proceed with it as market conditions turned adverse after Russia invaded Ukraine.


Samra said that as per the Reserve Bank of India's norms, the deadline for the bank to be listed is March 2025.


"Even though there is no sword hanging on our heads, still for growth, you do need capital," he said.


Proceeds from the IPO will primarily be used to fund growth, for which the Jalandhar-based small finance bank is increasingly focusing on branch expansion.


"We have 172 branches as on date and there are eight branches that will open up, say in the next three-four months, but this year, we will be taking the number to 185–190 branches. So, around 20 branches will be added in the financial year," Samra said.


"For the next two years, we will be concentrating on Haryana, Rajasthan, Himachal and Delhi so that we can have a meaningful presence first in the area that we have chosen for ourselves and then, in the second phase, we will expand to other states across India."


According to the draft red herring prospectus filed earlier, the bank had planned a fresh issue of shares aggregating up to 4.5 bln rupees and an offer-for-sale of up to 3.84 mln shares.



"This year, we expect that overall, our business will grow 24-28%. Loans would be growing around 30%, and we are expecting deposits to grow around 20% for 2023-24," Samra said.


As on Mar 31, the bank's deposits stood at 65.6 bln rupees, up 14% on year, while advances were up 18% at 55.1 bln rupees. The bank's net profit for the year ended March rose 55% to 936 mln rupees and net interest income was up 23% at 3.22 bln rupees.


The bank is currently focusing on loans to the agriculture sector, medium, small and micro enterprises, and the mortgage sector. Going forward, Samra expects higher demand from medium, small and micro enterprises and the mortgage sector, due to which the share of agriculture loans in the portfolio mix is expected to come down.


"It is a natural thing that is happening because the original three districts of Jalandhar, Kapurthala and Hoshiarpur were agriculture-based districts. So, at that point, the percentage of agriculture loans was somewhere around 44-45%," Samra said. "But now, as there is no restriction on the area of operations, and as the avenues for lending are increasing, this (portion of agriculture loans) is automatically coming down."


He also said that with more cost optimisation and a bigger customer base, fee income would keep on increasing.


"I think all this will contribute to further improvements in key ratios," he said.


In 2022-23, the bank's net interest margin was 4.19%, and the bank expects this to improve to 4.4-4.5% in 2023-24.


Samra is very sure that the bank will not enter unsecured lending in the near future.


Segments like medium, small and micro enterprises took a hit during the COVID-19 pandemic, but are recovering now, Samra said. "Maybe, that was the reason for the rise in NPA (non-performing asset) ratio. But at present, MSME is performing very well," he said.


As on Mar 31, the bank's net NPA ratio for MSMEs and trading loans stood at 3.14%, against 2.88% a year ago and the overall net NPA ratio was steady at 1.4% as on Mar 31.


Samra said that given the type of business model the bank follows, it is still not seriously exploring options to tie up with financial technology companies. "We want the regulations to settle down and to study them further. Only then can we think about partnerships with fintechs."



Samra said the bank would soon submit an application for an authorised dealer-I licence. "I think it will take a couple of months to get things ready," he said.


Currently, Capital Small Finance Bank has tie-ups with ICICI Bank and YES Bank to carry out customer remittances. Once the bank gets the licence, the fees charged by these banks to customers and the bank will cease, which will in turn increase the small finance bank's fee-based income, Samra said.


"All the small finance banks are exhibiting good performance and now, with COVID-19 behind us, the future looks bright for all entities," he said.  End


Edited by Avishek Dutta


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