Federal Bank subsidiary Fedbank Financial Services (FedFina) is aiming to raise up to ₹1,400 crore through an Initial Public Offering (IPO) by the end of 2023, a top official at its promoter entity Federal Bank has said.
The Non-Banking Finance Company (NBFC) arm of the South-based bank re-filed its Draft Red Herring Prospectus for an IPO last week, after the previous go-ahead lapsed as choppy market conditions prevented it from moving ahead.
“They (Fedfina) are looking at an IPO of somewhere in the ₹1,200-1,400 crore range. We are looking to do something in the course of calendar 2023,” Federal Bank’s managing director and chief executive Shyam Srinivasan told PTI in an interaction.
He said the NBFC arm is growing well and has adequate capital to take care of growth requirements till early 2024.
Capital markets regulator SEBI will take some time to go through the papers and issuance can happen in the next 90-100 days, he said.
The retail finance-focused company plans to raise up to ₹750 crore through a fresh issuance, while there is also an offer-for-sale portion, where Federal Bank (1.64 crore shares) and private equity player True North (5.38 crore shares) propose to offload shares. The private sector bank owns 74 per cent of the NBFC arm at present. Earlier, Srinivasan had said that Federal Bank will continue to hold a majority stake in the NBFC even after listing it.
Srinivasan said that a capital of ₹3,039 crore raised by the bank last week through a qualified institution placement of shares will suffice the lender for up to four years.
“The bank will be using the capital to grow its credit cards, micro finance, commercial vehicles and personal loan book, which are relatively new areas for the lender,” Srinivasan said.
At present, these four lending lines contribute ₹8,000 crore to the overall loan book of over ₹1.8 lakh crore and by 2027, he sees these four businesses growing to ₹40,000 crore of what will be a ₹3.5 lakh crore book.
“This entails a loan book growth of 18 per cent per annum, which will help double the book in four years,” he added.
When asked about the concerns around unsecured lending, Srinivasan said the bank’s exposure to such products is small right now and even as it plans to grow at a faster pace, it has decided to cap the exposure to 10 per cent of the overall book.
Even for the system, where some banks are showing growths of over 40 per cent even after having a higher base on such products like credit cards and personal loans, the growth in such advances will not be a problem, Srinivasan said, pointing out that granular data on customer behaviour coupled with the risks of having a blot in the repayment histories persuade people to pay up.
The slowdown in the new to credit (NTC) people in the overall lending universe is good news for the banking system’s health, Srinivasan said, adding that this illustrates responsible calls being taken by the banks.
“On the wholesale lending front, there is a greater focus at Federal Bank to have a much broader relationship with a client, beyond merely being a small part of a lenders’ consortium,” Srinivasan said.
“The broader relationship ensures that the bank gets other fee-based businesses from the same client and is also better from a risk perspective, as it has better visibility of fund flows,” he added.
Srinivasan said there is merit to focusing on the non-interest income and the bank has seen faster growth on this line with the focus on the depth of a relationship.