Suryoday Small Finance Bank IPO: Information Analysis

Suryoday small finance bank (SFB), which started off as a micro-finance institution back in 2009 and now operates as a small-finance bank, is coming out with its Rs 582 crore IPO. The bank is led by one of its promoters Baskar B Ramachandran, who has also been associated with GE Capital Transportation and HDFC Bank in the past. Ever since starting its SFB operations, the bank has quickly grown and diversified its loan book. During March 2018-2020, Suryoday's gross loan portfolio more than doubled to reach Rs 3711 crore. As of December 2020, the portfolio was spread across inclusive finance (micro loans - 70.3 per cent), CV loans (9.4 per cent), affordable housing loans (6.3 per cent), secured business loans (3.6 per cent) and others. The bank, under its micro-lending operations, mainly lends to micro-entrepreneurial women under the joint-lending-group model in urban and semi-urban areas. Though the operations of the company are spread across 10 states, just Maharashtra, Tamil Nadu and Odisha account for 61 per cent of its 554-branch network. On the borrowing end, the bank has been able to increase its proportion of retail deposits out of the total deposits substantially to 72 per cent in December 2020 from just 41 per cent in March 2018. This has led to a lower cost of funds for the bank. However, COVID has led to a deterioration in the bank's asset quality. Taking into account the loans that have not been categorised as non-performing per the Supreme court order, pro forma gross NPA for December 2020 would be at 9.3 per cent. However, the risk from uncertainty in the asset quality is mitigated by a very robust capital-adequacy ratio of 41.2 per cent. Further, the collection efficiency across the states has improved and the management has not seen any restructuring of its micro-lending loans. Going forward, the management intends to keep its micro-lending and non-micro-lending loan books in a 60:40 ratio. The bank currently serves over 14 lakh customers and is adequately positioned for higher growth in the coming years. Strengths The bank has managed to display strong customer retention in its micro-lending business. Its retention ratio stood at 87.4 per cent for the nine months ended in December 2020. This has been achieved on the back of innovative product launches such as Smile OD (an overdraft facility for micro-borrowers) and other customer-centric approaches. The company is sitting on ample liquidity with almost 37 per cent of its assets in liquid investments. Along with that, it boasts of a capital-adequacy ratio of 41.2 per cent as of December 2020. Proceeds from the fresh issue will further bolster the balance sheet, making the bank ready for superior growth as the economy comes out of COVID-led disruption. The company has managed to run its operations quiet efficiently as is eviden