Capital market regulator SEBI has issued final observations for the IPO of Catholic Syrian Bank. The Kerala-based regional bank aims to raise INR400 crore through the IPO. The company had filed its draft red herring prospectus (DRHP) with market regulator in March through its lead merchant banker ICICI Securities.
The mid-sized private lender also plans to place shares worth INR150 crore through a pre-IPO placement.
NPAs following “increasing trend”
As of September 2014, its gross and net non-performing assets (NPAs) stood at 5.56% and 3.76% respectively, the company said in its IPO prospectus adding that the NPAs were following “increasing trend”. Apart from the industry-wide issue of NPAs, the bank is besotted with other issues. Early this year, its chief executive Rakesh Bhatia resigned and the bank is yet to find a replacement.
Also Read: Catholic Syrian Bank IPO plans on hold
Perfect capital structure
According to RBI rules, promoters cannot hold more than 10% and an institution cannot hold more than 5% of a bank. Catholic Syrian Bank already fulfils these conditions as its top shareholder is Yusuff Ali M A who holds 4.98%. Collectively, the top 10 shareholders in the bank hold 37.71% of its pre-issue share capital. In its offer document, the bank has clearly indicated it has no promoters. This capital structure may have played a big role in the fast regulatory approval for the IPO.
Talks with other banks
Despite the SEBI approval, the bank’s IPO may be delayed. Catholic Syrian Bank is reportedly seeking a valuation in the range of INR1,100 – 1,500 crore through the IPO although its valuation is expected to be discounted given its relatively high NPAs. Big shareholders of the bank are reportedly in discussions with other banks to offload their stakes. HDFC Bank, RBL Bank (formerly Ratnakar Bank) and IDFC Bank were approached although all the three banks have denied that they are in negotiations with Catholic Syrian Bank for such transaction. Apart from offering exit opportunity to existing shareholders, such transactions can also enhance valuations of the bank.