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About the Company

Suryoday Small Finance Bank (SSFB) Ltd is among the leading SFBs in India in terms of net interest margins, return on assets, yields and deposit growth and had the lowest cost-to-income ratio in fiscal 2020, as per the CRISIL report. They have been serving customers in the unbanked and underbanked segments in India and promoting financial inclusion.

Prior to the commencement of operations as a SFB, they operated as an NBFC, carrying out microfinance operations, employing the joint liability group lending model for providing collateral-free, small ticket-size loans to economically active women belonging to weaker sections. Over the years, they have diversified their loan portfolio to include non-micro banking loans thereby reducing dependence on micro banking business.

Their customer base is 1.44 mn and operates through 554 banking outlets including 153 Unbanked Rural Centres as of December 31, 2020. Further, they have set up 661 customer service points (CSPs) as additional services to expand their reach.

Objects of the Issue

 Augmenting the Bank’s Tier – 1 capital base to meet its future capital requirements.

 General corporate purposes.

Valuation

The banking sector as a whole was impacted by the pandemic which led to the deterioration of assets quality and impacted collections which in turn affected banks' revenue as well as profitability. Within the space, private banks are in a much better position as compared to PSU’s and small banking finance banks as they made higher provisions, have a diversified customer base, strong financials, stable balance sheet and prudent management.

Over the years, SSFB has been able to diversify its product portfolio into segments such as commercial vehicles, home loans and other loans but its large chuck still depends on microfinance business (MFI) (~70%). Further, in Covid times, large exposure to MFI business deteriorated the bank’s assets quality however it is expected to get normalized once collections efficiency improves. Also, SSFB has made temporary provisions to mitigate the risk. Besides, in terms of region business presence, major business (75-80% of revenue) comes from three states such as Maharashtra, Tamil Nadu and Odisha and these states were severely impacted by the pandemic.

Though collections and deposits are improving, there are customer segments and businesses, which are still impacted and expected to recover gradually. We feel the bank would continue to face challenges in the near term however its medium to long term outlook remains bright. Going ahead, the bank focus remains on growing secured portfolio in non-MFI such as commercial vehicles and housing loans, also expanding distribution channel as well as increase geographical presence will remain their top priorities. On the valuation front, the company is valued at 2.4x P/BV, 9MFY21. Investors can Subscribe for the long term.

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