Jana Small Finance Bank has raised ₹560 crore of capital from a clutch of investors such as Ashish Kacholia, Amansa Holdings, and Enam Holdings. The capital raise was important to salvage the bank’s capital adequacy.

According to sources, for the purpose of the fund raise, the bank’s pre money value was considered at ₹1,700 crore. Its FY23 net worth stood at ₹1,504 crore. Extending the Q4 FY23 profitability run-rate, the pre-deal net worth would be around ₹1,600 crore. At these valuations, capital has been raised at a marginal premium to book value, echoing the current sentiments for small finance banks.  

The equity raise was conducted through right issue last week.  

Interestingly, TPG Capital abstained from the issue as it has exhausted its permissible investment limits in the bank.  Reports suggest that Ramesh Damani has also participated in this round of fund raise, though this could not be independently verified.  

Important deal

This round of capital infusion is important for three reasons.

First, at 15.6 per cent capital adequacy as on March 31, 2023, the bank could have been exposed to the risk of regulatory oversight. The minimum capital threshold for SFBs is 15 per cent and with ₹560 crore of emergency capital coming in, the ratio is said to have increased to 19 per cent.

Secondly, this also takes the bank step closer to the initial public offering, which has been pending for the last two years. It is expected that Hero Ventures will be allotted equity shares worth ₹350 crore as its compulsorily convertible preference shares will be converted prior to the IPO. Per Jana SFB’s draft red herring prospectus filed in 2021, Hero Ventures holds over five per cent stake in the bank.

IPO preparation

Sources say this is the first fund infusion that has concluded at a discount for the bank. The rights issue of ₹337 crore done in September 2022 valued the bank at ₹3,000 crore — roughly at about 2.5x price to book based on FY22 financials.

With ₹560 crore of equity infusion, the bank’s pre-IPO, including future expected earnings, is pegged at ₹3,500 crore– 4,000 crore. This is about 1.2x forward price to book.

Jana SFB is expected to file a revised draft prospectus with the market regulator in a week or so.