Jana Small Finance Bank Limited IPO – Get Date, Price, Review and Details

In this article, we will discuss:

• Introduction
• Investment Rationale
• Key Risks
• Conclusion

Introduction

Jana Small Finance Bank was Incorporated on July 24, 2006, as a non-banking finance company (NBFC) and subsequently attaining NBFC-Microfinance Institution (NBFC-MFI) status on September 5, 2013. It received the Small Finance Banking license on March 28, 2018 and it currently stands as the fourth-largest Small Finance Bank in terms of Assets Under Management (AUM) and deposits. With 771 banking outlets across 22 states and two union territories, including 278 in unbanked rural centres, the bank has served approximately 12 million customers since 2008, boasting 4.87 million active customers as of September 30, 2023. Reporting an AUM of INR 23,030 crore as of H1FY23, the bank's portfolio comprises 57.42% in the secured segment and 42.3% in the unsecured segment.

Investment Rationale

Extensive Nationwide Presence and Digital Focus

The bank boasts a widespread network of 771 outlets across 22 states and two union territories. With a strong emphasis on digitization, the majority of its services are accessible digitally, reflecting a commitment to modern banking practices.

Customer-Centric Approach and Impressive Growth

Since 2008, the bank has successfully served 1.2 million customers, with a notable 48.7 lakh active customers as of September 2023. Its tailored asset products primarily target underbanked and underserved customers, showcasing a customer-centric approach that has fuelled significant growth.

Tech-Savvy Workforce and Integrated Risk Management

Boasting an employee base with an average age of around 30, the bank's staff is adept at utilizing technology throughout various functions. The bank has implemented an integrated risk management framework, emphasizing the identification, measurement, assessment, and management of key risks.

Financial Inclusion Initiatives in Urban and Rural Areas

A pioneer in driving financial inclusion, the bank offers doorstep banking services in both urban and rural regions. This initiative aligns with the bank's 16 years of experience in serving underbanked and underserved customers, particularly within the MSME segment.

Strategic Deposit Growth and Cost Reduction

The bank's strategic focus on retail deposits has resulted in rapid growth and a diversified deposit franchise. As of September 2023, it stands among the top four Small Finance Banks in India by deposit size. This approach has contributed to a notable decrease in the Cost of Funds, dropping from 8.61% in March 2021 to 7.55% by September 2023.

Key Risks

Risk Exposure in Unsecured Microfinance Loans

Unsecured microfinance loans constitute 42.3% of the bank's loan book as of September 2023, presenting a higher credit risk due to the absence of collateral. Borrowers, often with limited income and credit history, pose challenges in assessing creditworthiness accurately.

Regional Concentration and Sensitivity to Adverse Developments

Tamil Nadu, Karnataka, and Maharashtra collectively contribute significantly to the bank's operations, with 38.24% of advances, 31.59% of deposits, and 28.92% of branches. Economic slowdowns, political unrest, natural disasters, or epidemics in these states could adversely impact the bank's business.

Dependence on Bulk Deposits and Potential Business Impact

The bank heavily relies on bulk deposits, constituting 32.8% of its funding, while the CASA deposits ratio is relatively low at 20.5% as of September 2023. A partial or complete withdrawal of bulk deposits by customers could have adverse implications for the bank's business.

Disputed Receivables with Bank of Maharashtra

A dispute surrounds a pool of receivables totalling Rs 100 crore assigned to Bank of Maharashtra, along with associated interest payable. The High Court of Bombay has directed both entities to amicably resolve the pending dispute, introducing an element of uncertainty in this financial matter.

Conclusion

Jana Small Finance Bank Ltd operates in a segment that is highly underpenetrated and has sufficient legroom to grow. This is evident from the fact that the company has been growing its AUM by 35% in H1FY23, 31% and 20% in FY23 & FY22 respectively. The bank operates in a niche segment both geographically and in product category making it less prone to be disturbed by bigger banks. It generates handsome yields of 14.7% and NIM of 7.78% as of H1FY23. The Company has been steadily increasing its quality of book, it is reflective in its declining NPAs.

At its upper price band, the bank demands a price to book of 1.65x as of H1FY23. We are optimistic about the industry and the company growth but also believe that the Issue is fully priced in.

Thus, Investors with a short-term view and those who likes to exploit the listing gains might not benefit from this. Investors with a long-term view can consider Subscribing to this IPO.