Jana Small Finance Bank IPO Review is coming up with its initial public offering. The IPO will open for subscription on February 7, 2024, and close on February 9, 2024. In this article, we will look at the Jana Small Finance Bank Limited IPO Review 2024 and analyze its strengths and weaknesses. Keep reading to find out!

Jana Small Finance Bank IPO Review

About The Company

Jana Small Finance Bank was incorporated on July 24, 2006, registered as a non-banking finance company (“NBFC”) on March 4, 2008, and was awarded non-banking finance company-microfinance institution (“NBFC-MFI”) status on September 5, 2013. The institution started operating as a small finance bank with effect on March 28, 2018, and became a scheduled commercial bank on July 16, 2019.

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As of September 30, 2023, Jana Small Finance Bank holds the rank of the fourth-largest small finance bank based on assets under management (AUM) and deposit size. The bank operates 771 banking outlets across 22 states and two union territories, encompassing 278 outlets in unbanked rural centers. Since its inception in 2008, Jana Small Finance Bank has catered to nearly 12 million customers, boasting 4.87 million active customers as of September 30, 2023.

Jana Small Finance Bank offers various secured loan products, including secured business loans, microloans against property (“Micro LAP”), MSME loans, affordable housing loans, term loans to NBFC, loans against fixed deposits, two-wheeler loans, and gold loans. Additionally, the bank offers unsecured loan products such as individual and microbusiness loans, agricultural and allied loans, and group loans based on the Joint Liability Group (“JLG”) model, specifically designed for groups of women.

About The Industry

The Reserve Bank of India (RBI) introduced small finance banks in 2015 to enhance financial inclusion, particularly in rural and semi-urban areas. Out of the 10 entities granted in-principle approval, 8 were microfinance institutions selected for their track record in serving low-income groups. Notably, AU SFB and Capital SFB are the only non-NBFC-MFIs to receive an SFB license. They were authorized to operate in contiguous districts, mobilize rural savings, and promote local investments to advance financial inclusion.

Since their inception, small finance banks have experienced a 10% compound annual growth rate (CAGR) in semi-urban and rural areas from FY15 to FY23. Their total deposit base doubled to approximately Rs. 37,500 crore by FY19, surging at around 48% CAGR to reach Rs. 1.6 lakh crore by FY23. CRISIL MI&A anticipates SFBs’ deposits to grow at a 40–45% CAGR until FY25.

Small finance banks’ Assets Under Management (AUM) recorded a 29% CAGR during FY18–23, with CRISIL MI&A projecting a robust 22-24% CAGR in the sector’s loan portfolio from FY23 to FY25, as most SFBs have completed their transition phase and stand to benefit from operating leverage.

Gross non-performing assets (NPAs) peaked at 3.8% in FY20 due to pandemic-induced loan defaults. However, NPAs have consistently decreased to a record low of 2.8% in FY23, with the Eastern and Southern regions reporting the highest NPAs at 3.4%. Notably, the Northeastern region has made significant strides, reducing NPAs from 6.6% and 6.3% to 2.2% and 3.4%, respectively.

Jana Small Finance Bank: Financials

Reviewing the financials of Jana SFB Limited reveals notable trends. Between March 2021 and March 2023, the bank’s deposits surged from Rs. 12,316 crores to Rs. 16,334 crores, possibly indicating a rise in account openings.

Concurrently, advances grew from Rs. 11,600 crores in FY21 to Rs. 17,759 crores in FY23, fostering increased interest income and suggesting overall bank growth. Additionally, reserves and surpluses increased from Rs. 914 crore in FY21 to Rs. 1472 crore in FY23, serving as a positive buffer against unforeseen losses like defaults.

Concerning non-performing assets, Jana SFB Limited reported a decline in gross NPA from 7.24% in FY21 to 3.94% in FY23 and net NPA from 5.33% to 2.64% over the same period. This indicates a reduction in defaults in FY23 compared to FY21.

On the revenue front, the bank saw total revenue climb from Rs. 2,498 crores in FY21 to Rs. 3,075 crores in FY23, accompanied by a significant increase in total profits from Rs. 72 crores to Rs. 256 crores over the past three years.

 The balance sheet of the company

Jana Small Finance Bank IPO Review - The balance sheet of the company
Source: RHP of the company

The Income Statement of the company 

The Income Statement of the company 
Source: RHP of the company

Key metrics of the company

Key metrics of the company
Source: RHP of the company

Key Player

Below are the listed peers of Jana Small Finance Bank.

 listed peers of Jana Small Finance Bank
Source: RHP of the company

Strengths of the Company

  • Pan-India presence with strong brand recognition: Jana SFB Limited’s extensive network of 771 banking outlets across 22 states and two union territories, including 278 in unbanked rural areas, reduces concentration risk and enhances market reach.
  • Jana is a digitalized bank: The majority of the bank’s services are available in digital form to customers. It is a digitally advanced bank, employing integrated operations and cutting-edge technology to automate core processes.
  • Expanding Retail Deposit Portfolio and Diverse Deposit Franchise: Offering diverse deposit products such as current accounts, savings accounts, and term deposits with competitive interest rates, steady growth in deposits has been witnessed, reaching ₹189,367.24 million by September 30, 2023.
  • More than 16 years of experience in serving underbanked and underserved customers: Jana specializes in serving underbanked and underserved customers, especially in the MSME sector. It offers diverse loan options and banking services in urban and rural areas, driving financial inclusion.
  • Professional and experienced management and board: The bank has an experienced board, comprising members with diverse business experience, many of whom have held senior positions in well-known financial services institutions and banks, including the RBI.

Weaknesses of the Company

  • A high illiquidity ratio suggests that the bank possesses a limited quantity of liquid assets, impacting its capability to settle debt obligations and short-term liabilities.
  • A low core deposit ratio signifies that the bank possesses fewer assets supported by deposits, signaling low liquidity. Failure to enhance the core deposit ratio could negatively impact it.
  • The bank has extended new loans to microfinance borrowers with previous NPAs, offsetting earlier NPAs with the proceeds of these new loans. This practice carries the risk of worsening asset quality and escalating credit risk.
  • The entity is exposed to interest rate risk, which would unfavorably impact its net interest margin, leading to adverse effects on net interest income and, subsequently, on the results of operations and cash flows
  • In the past, the bank failed to adhere to certain covenants outlined in their financing agreements. Any failure to comply with these covenants, unless waived, may be deemed an event of default. This could result in various consequences, including accelerated repayment schedules, asset securitization, and the suspension of further drawdowns

Jana Small Finance Bank: GMP

The shares of Jana Small Finance Bank Ltd. traded at a 26.09% premium in the grey market as of February 5, 2024. The shares in Grey Market traded at Rs 522. This gives it a premium of Rs 108 per share over the cap price of Rs 414.

Key IPO Information

ParticularsDetails
IPO SizeRs. 570 Cr
Fresh IssueRs. 462 Cr
Offer for Sale (OFS) Rs. 108 Cr
Opening date7 February 2024
Closing date9 February 2024
Face ValueRs. 10
Price BandRs. 393 - 414
Lot Size36 Shares
Minimum Lot Size1 Lot (36 Shares)
Maximum Lot Size13 Lots (468 Shares)
Min. InvestmentRs. 14904
Listing Date14 February 2024

Promoters: Jana Capital Limited And Jana Holdings Limited

Book Running Lead Manager: Axis Capital Limited, ICICI Securities Limited, and SBI Capital Markets Limited

Registrar to the Offer: KFin Technologies Limited

The Objective of the Issue

The bank intends to utilize the net proceeds of the IPO for the following purposes:

  • We are increasing the bank’s Tier-1 capital base to meet its future capital requirements.
  • To improve Tier-I capital and CRAR.
  • To meet the expenses incurred for the issue.
  • To increase the business of the bank, which is primarily onward lending.

Conclusion

In this article, we looked at the Jana Small Finance Bank Limited IPO Review 2024 details. Analysts remain divided on the IPO and its potential gains. This is a good opportunity for investors to look into the company and analyze its strengths and weaknesses. That’s it from us about Jana Small Finance Bank. Before we end this article, it’s important to note that on February 7th, two small finance banks will be offering their shares to the market. Both Capital and Jana will be listing themselves on the exchange on February 14th. So we hope you have done your IPO research well and have compared both of these banks to pick your best bet. Which bank are you applying to for the IPO? Let us know in the comments below.

Written by Ashish

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