What GMP Indicates For Jana Small Financial Bank IPO

Jana is A fastest growing SFB with a diversified portfolio…

Jana Small Finance Bank Ltd. (JSFBL), headquartered in Bangalore, India, initiated its
operations in March 2018. Formerly recognized as Janalakshmi Financial Services, it
stood as India’s largest microfinance institution, established in 2006. JSFBL primarily
offers deposit products (including demand, savings, and term deposits) and lending
services, comprising both secured and unsecured loans. Its network spans 771
banking outlets, with 278 located in unbanked rural areas, across 22 states and two
UTs. Serving ~12mn customers since its inception in 2008, JSFBL boasts 4.87mn active
customers as of September 30, 2023. Key shareholders of the bank include TPG,
HarbourVest Group, Amansa Capital, Morgan Stanley, and Hero Ventures

• SFB’s (Small Finance Banks) deposits have grown at a CAGR of 35.6% over FY21-23.
  The total deposits of SFBs in FY23 stood at Rs. 1,612.1 bn compared to Rs. 1,203.8 bn in
  FY22, clocking a YoY growth of 33.9%.
• SFB industry’s advances and deposits are expected to grow at a CAGR of 33.4% – 44.0%
  from FY23-FY25, driven by strong rural expansion, new products, cross-selling, lowcost funding, and organized credit channel expansion. (source: FSIAPL Analysis)
• JSFBL’s gross advances grew at a CAGR of ~23% over FY21–23, while deposits grew at a
  CAGR of 15.2% over the same period, led by improved customer retention, crossselling opportunities, and a lower cost of funds.
• JSFBL is the 4th largest SFB in terms of AUM (advances) as of H1FY24, with an AUM of
  Rs. 213.5bn, and its market share of AUM in the SFB segment as of H1FY24 is at 10.7%.
• The cost of funds has reduced from 8.61% in FY21 to 7.55% in H1FY24, aided by a
  diversified retail deposit base.
• The bank has significantly reduced its GNPA (gross NPA) ratio to 2.44% in H1FY24
  from 3.94% in FY23 and 7.25% in FY21. The NNPA (net NPA) ratio has also declined to
  0.87% in H1FY24 from 2.64% in FY23 and 5.33% in FY21. Further, the bank has raised
  the provision coverage ratio to 64.9% in H1FY24 from 27.89% in FY21.
• The bank has maintained healthy net interest margins at 7.78% in H1FY24, up from
  7.47% in H1FY23 and 7.73% in FY23.
• The cost to income ratio of the bank stands at 58.48% in H1FY24. The RoA of the bank
  is strong at 1.6% and the RoE at 19.6% in H1FY24.
• The company has performed a pre-IPO placement of 2,439,607 equity shares at an
  issue price of Rs. 414 each (including a premium of ₹ 404 per Equity Share),
  aggregating to Rs.100cr.
• At the upper price band of Rs.414, JSFBL is available at a P/Bv of 1.4x (FY24E
  annualised), which appears to be reasonably priced compared to its peers. Considering
  its rapid growth in deposits, diversified loan portfolio, strong brand equity, improved
  asset quality ratios, healthy return ratios, and financial inclusion.

Purpose of Jana Small financial bank IPO

The IPO consists of fresh issue of Rs. 462cr and an offer for sale (OFS) of Rs.108cr by the
selling shareholder totalling to Rs.570cr. The net proceeds from fresh issue to be utilised to
augment Bank’s Tier – I capital base to meet the bank’s future capital requirements.

Key Risks

• High credit risk: ~43% of H1FY24 advances are unsecured. Future efforts aim to elevate
  the mix of secured loans.
• Regional concentration risk : ~40% of gross advances is from top 3 states.
• Increasing competition from other SFBs.

Business Description:

As per Fitch report, JSFBL is the fourth largest Small Finance Bank in terms of AUM and the fourth largest Small Finance Bank in terms of
deposit size as of September 30, 2023. The primary secured loan products are secured business loans, micro loans against property (Micro
LAP), MSME loans, affordable housing loans, term loans to NBFC, loans against fixed deposits, two-wheeler loans and gold loans. The primary unsecured loan products are individual and micro business loans, agricultural and allied loans, and group loans (group loans are
offered to a group of women as per the Joint Liability Group (JLG) model. The agricultural and allied loans as a percentage of gross advances have increased from 13.10% as of March 31, 2021, to 16.93% as of September 30, 2023.

Key Strengths

• A digitalised bank and the majority of our services are available in digital form to customers.
• Integrated risk and governance framework
• Customer-centric organization with more than 16 years’ experience in serving underbanked and underserved customers.
• Pan-India presence with strong brand recognition.
• Fast growing Retail Deposits base and diversified deposit franchise
• Proven execution ability

Key Strategies

• Focus on accelerating the secured loans book with the purpose of meeting customers’ needs and diversifying our lending book.
• Reshape unsecured loans (Microfinance Loans) business.
• Improve risk profile.
• Enhance the growth of Retail Deposits.
• Alliances with third parties from banking to broking.
• Deepen customer relationships.
• Continued focus on digitized operations.

Industry outlook

SFBs offer basic banking services such as payment, accepting deposits and lending to the unserved and the underserved segments of the
Indian economy, including small businesses, marginal farmers, micro and small industries, and the unorganized sector. SFBs are focused
on serving the customers at the bottom of the pyramid to drive financial inclusion. The growth in the industry is illustrated by the exponential growth in both advances and deposits and is supported by the robust rural growth, new product offerings and associated crossselling opportunities, which will drive the SFBs’ market share to multi folds in the future. (Source: Fitch Report).
The exponential growth in the SFB (Small Finance Bank) industry is illustrated by the growth in both loans and deposits. As per FSIAPL’s
analysis, the advances and deposits in the SFB industry are projected to increase at a CAGR of 33.4% to 44.0% from Fiscal 2023 to Fiscal
2025.

GMP of Jana small financial bank IPO

As of February 6, 2024, the Grey Market Premium (GMP) for Jana Small Finance Bank’s IPO is Rs 66. This means the estimated listing price for the IPO is Rs 480, based on the price band of Rs 414.

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Upcoming

Following IPOs will open on 7th Feb:

Capital Small Finance Bank

Price band: Rs 445 to Rs 468. Issue size: Rs 523 cr.

Jana Small Finance Bank

Price band: Rs 393 to Rs 414. Issue size: Rs 570 cr.

Rashi Peripherals

Price band: Rs 295 to Rs 311. Issue size: Rs 600 cr.

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