Varanasi-based Utkarsh Micro Finance Pvt. Ltd has raised fresh capital of Rs 395 crore ($60 million) from several domestic institutional investors in a transaction that will help it to bring down the foreign holding below the 49% mark it must achieve to transition to a small finance bank.
The microlender raised funding from HDFC Standard Life Insurance, HDFC Ergo General Insurance, ICICI Prudential Life Insurance, Shriram Life Insurance, RBL Bank, Small Industries Development Bank of India and private equity funds Faering Capital and Arpwood Capital.
ICICI Securities and Avendus Capital advised Utkarsh Micro Finance on the capital raise.
The transaction is likely to complete next week, said Gautam Benjamin, executive vice president and head of financial sponsors group at ICICI Securities. Utkarsh founder Govind Singh confirmed the development.
The deal will reduce the company’s foreign shareholding from 85% to 49%, which is essential to complying with the regulatory requirements. In August, VCCircle reported that the company was raising capital from eight to nine domestic investors at a valuation of Rs 1,000 crore.
Earlier in the day, the Mint newspaper reported that the company had raised capital from the investors named above.
In an earlier interaction, Utkarsh CFO Abhisheka Kumar had said that the lender would convert into a holding company after the funding. This holding firm would house the subsidiary Utkarsh Small Finance Bank, which would run the banking operation.
He had also said that the microfinance company was awaiting approval from the Reserve Bank of India since the round entailed a dilution of more than 26% in the holding company. Both Faering Capital and RBL Bank will own about 9.9% stake each and the other investors will hold less than 5% of Utkarsh.
RBL Bank will also become a preferred partner and will help meeting the future lending requirements of Utkarsh as a small finance bank.
According to an earlier VCCircle report, Aavishkaar Goodwell (15.29% stake), Sarva Capital LLC (12.82%) and Norwegian Microfinance Initiative (17.28%) had been looking to sell their stake in the company. International Finance Corporation and Aavishkaar Goodwell India Microfinance Development Co. Ltd. were among the first investors to back the microlender in 2009.
Other small finance banks
Utkarsh joins several other companies with approval to start a small finance bank in reducing its foreign holding. Janalakshmi Financial Services Pvt. Ltd, Disha Microfin Pvt. Ltd, Equitas Holdings Ltd and Ujjivan Financial Services Ltd are among the others which have raised funds either to launch small finance banks or meet the RBI’s norms on shareholding.
Janalakshmi raised about Rs 1,000 crore in April from investors led by global private equity firm TPG, though it didn’t say whether this round helped in reducing its foreign holding.
Equitas and Ujjivan went public earlier this year while Disha Microfin was looking to raise about Rs 300 crore to comply with the central bank’s foreign shareholding norms.
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