Fincare Small Finance Bank Bond: Investment Analysis

Fincare Small Finance Bank Limited (FSFB) is a Scheduled Bank in India that aims to provide financial inclusion to the underbanked and unbanked segments of society. FSFB commenced its operations as a small finance bank with effect from July 21, 2017. The bank has come up with a Tier 2 Subdebt bond issue of Rs.49 crore and is rated A (Positive Outlook) by ICRA. In this blog, we will analyze the various aspects of the bond issue, including the company profile, financial parameters, rating rationale, and investment opportunities. The details of the issue are as follows:

Company Profile

• The journey of Fincare Small Finance Bank Limited (FSFB) was the process of coming together of 2 NBFC Micro Finance Institutions, Future Financial Services, and Disha Microfin. 
• Fincare Small Finance Bank Limited commenced banking operations on 21st July 2017, with a vision to enable the financial inclusion of the unbanked and underbanked base of the pyramid, mass retail, and micro and small enterprise segments with the active participation of the affluent.
• It is a “digital first” bank with a focus on technology-led operations across all aspects of banking operations.
• Draft Red Herring Prospectus (DRHP) has been filed by Fincare Small Finance Bank for an Equity listing of Rs 625 Cr.
• As on March 31, 2022, the bank served 32+ lakh customers in 17 States/UT with a workforce of 11000+.

Top 10 holders of the Equity shares of the company as on March 31, 2023:

Performance Highlights:

• Bank is experiencing steady expansion in its total assets over the years reaching an impressive figure of Rs.12468 crores in FY 23. With a growing asset base, the bank is well-positioned to support its lending activities and provide a wide range of financial services to its customers. 
• Total deposits show a CAGR of 22.90% over the last 3 years with a healthy share of deposits of the total liabilities.
• The gross loan portfolio witnessed a compounded annual growth rate (CAGR) of 27.76% over the years. The double-digit growth indicates the bank’s strong and sustainable expansion. 
• Net interest margin is a crucial indicator of a bank’s profitability, representing the difference between the interest paid and the interest received. The net interest margin (%) of the bank stood at 10.72% in FY 23 compared with 11.05% in FY 22 and 9.87% in FY 21.     

Financial Parameters of the Company:

(Amt. in crores)

Industry Peers:

As per the CRISIL MI&A on Analysis of small finance banks and various retail loan products- April 2023 report, 

• Fincare SFB has 822 functioning offices across 19 states and 3 UTs as of nine months ended fiscal 2023 which is the second highest amongst its peer group.
• As of fiscal 2022, Fincare SFB has the third highest CAR of 22.32% amongst all SFBs after Suryoday SFB (37.9%) and Equitas SFB (25.2%). Fincare SFB’s CAR stands at 20.3% as of the nine months ended in fiscal 2023.

Rating Rationale

ICRA has assigned a rating of A (Positive Outlook) to FSFB’s bond issue.  In the recent rating rationale issued on June 06, 2023, ICRA has upgraded the outlook of Fincare Small Finance Bank from Stable to “Positive Outlook”  due to improved scale of operations with the trend expected to continue.

Further, ICRA also expects the bank’s asset quality and profitability metrics to continue improving, the rating considers the bank’s adequate capitalization profile, with a capital adequacy ratio (CAR) of 20.0% (Tier I: 18.6%) as of March 31, 2023, which exceeds the regulatory requirement of 15.0% (Tier I: 7.5%).

Link to rating rationale- 

https://www.icra.in/Rationale/ShowRationaleReport/?Id=120396

Term Sheet

The term sheet is a short summary document that includes all the important terms and conditions relating to bond investments. It contains the basic issue details like the coupon, maturity, covenants, security cover, etc. 

Here is the link to the term sheet of bonds of Fincare Small Finance Bank-  https://www.thefixedincome.com/uploads/products/term_sheet_upload/1687322015FINCARETS.pdf

How to Invest Through TheFixedIncome.com?

The eligible Investors for this issue as mentioned in the prospectus are as follows:

• Individuals 
• Hindu Undivided Family 
• Trust 
• Limited Liability Partnerships 
• Partnership Firm(s) 
• Portfolio Managers registered with SEBI 
• Association of Persons 
• Companies and Bodies Corporate including Public Sector Undertakings 
• Commercial Banks Regional Rural Banks 
• Financial Institutions 
• Insurance Companies 
• Mutual Funds 
• FPIs /FIIs, /sub-accounts of FIIs 
• Any other investor eligible to invest in the Debentures 

FSFB’s bond issue presents an opportunity for investors to support the bank’s vision of financial inclusion while earning a fixed income. The bank’s improved scale of operations, positive outlook, and strong financial performance contribute to its attractiveness as an investment option. However, investors should conduct thorough due diligence and carefully assess their risk appetite before making any investment decisions.

Disclaimer: This article is based on publicly available information and other sources believed to be reliable. The information provided in this article is intended for general, educational, and awareness purposes only and should not be considered a comprehensive disclosure of every material fact. It should not be interpreted as investment advice for any individual or entity. The article makes no guarantees regarding the completeness or accuracy of the information and disclaims all liabilities, losses, and damages arising from the use of this information. Investments in the debt market are subject to market risk, kindly read all the documents carefully.