Utkarsh Small Finance reports an oversubscription due to optimistic growth projections.

Utkarsh Small Finance, situated in Varanasi, saw a 16.2 times oversubscription on its Rs 500 crore initial public offering (IPO), with the retail component being subscribed to 36.66 times on Day 2.

On the first day of bidding, the offering was 4.73 times oversubscribed, with all tranches selling out.

Utkarsh Small Finance's loan book grew by more than 30 percent between FY19 and FY23, continuing a trend of healthy expansion over the preceding four years. This expansion is consistent with that of other small financing institutions.

The company's total revenue increased by 37.9 percent in the most recent fiscal year, reaching Rs 2,804 crore from Rs 2,033 crore in FY22. The bank's FY22 net profit of Rs 61.5 crore increased to Rs 404 crore.

Utkarsh Small Finance's administration envisions this expansion trend continuing in the years to come. Microfinance's resurgence and the creation of new business lines over the past several years are paying off and, according to MD and CEO Govind Singh, are helping fuel the company's expansion.

According to Singh, the bank's future expansion would be fueled by the introduction of new business lines. Some of these ventures, including micro, small, and medium enterprises (MSME), lab enterprises, affordable housing, and tiny corporations, were launched when the bank opened for operation in January 2017.

Singh remarked that "gradually, these verticals have become fully developed," boasting separate groups to handle credit, merchandise, collection, and sales. The company has been around for 14 years. The growth rate in some of our more established niches is only 15% to 20% every year. However, development in emerging markets is more rapid.

Utkarsh is concerned about the bank's low CASA level of 20.8% despite the fact that the business is growing rapidly. CASA, which stands for the combined deposits in checking and savings accounts, provides banks with access to cheap funds. The bank, according to Singh, is making efforts to raise its CASA ratio. Growth has been slower than expected since money has been transferred from regular deposits to fixed deposits during the past six months.

Even though the CASA ratio isn't going anywhere anytime soon, it has a safe funding source in the form of non-callable wholesale deposits. That is, they won't be prone to wild swings.

The bank also has a strong concentration in Bihar and Uttar Pradesh, both of which are trouble spots. However, this is typically the case with more conventional lenders of this type. Financial inclusion and lending options are greatly enhanced in these two regions. The quality of our assets and our portfolio as a whole will be maintained, and we will continue to concentrate on these states," Singh added.

The quality of the assets has not been a problem up to this point. The gross nonperforming assets (NPAs) for Utkarsh Small Finance were 3.23 percent and the net NPAs were 0.39 percent. The offering price represents a price-to-book value ratio of 1.1 for the company, compared to 2-4.6 for Equitas Small Finance Bank and AU Small Finance Bank, two of its main competitors.

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