Sebi turns down Equitas Holdings scheme for ESFB

Market regulator Securities and Exchange Board of India (Sebi) on Friday returned the scheme of arrangement mooted by Chennai-based Equitas Holdings with regard to Equitas Small Finance Bank, citing that draft scheme was not in compliance with the regulatory provisions.

In filing to stock exchanges, Equitas Holdings, promoter of ESFB, said it will initiate necessary steps to list its shares through Initial Public Offer (IPO)which is expected to be completed by March 2020 under normal circumstances.

Equitas Holdings was awaiting Sebi response to the scheme of arrangement it submitted, as the banking regulator RBI had, last week, refused to extend the listing deadline for ESFB and barred it from opening new branches till further orders.

N Vasudevan, MD and CEO of ESFB, had told analysts in an interaction that the scheme of arrangement was for the benefit of the public shareholders of the holding company and it would enable the bank to comply with RBI guidelines. He had said that RBI’s direction that ESFB could not open new branches would not have implications in the short-term.

The boards of EHL and ESFB had approved the Scheme of Arrangement wherein ESFB would capitalise its free reserves and issue shares of the bank to the shareholders of EHL without cash consideration, in proportion to their holding in EHL.

He had said that if the market regulator does not approve the scheme, the company would list the bank through an IPO. ESFB currently has over 600 asset branches and has set up around 400 liability branches. This would give it room to sustain growth over the next two years. The bank has to grow per-branch productivity. It is expecting that there would not be any material impact on growth for a couple of years due to this. The RBI rules mandate that an SFB must be listed within three years of reaching Rs 500-crore net worth. ESFB began operations on September 5, 2016 and it was supposed to get listed by September 4, 2019.

Since EHL, the holding company is listed and ESFB is a wholly-owned subsidiary, EHL approached the banking regulator with a reverse merger proposal. As the regulator did not consent to this proposal, the boards of EHL and ESFB had approved a Scheme of Arrangement and applied to Sebi for their approval of this scheme.

In the meantime, the RBI had refused to extend the deadline for ESFB listing and the banking regulator said that the bank cannot open new branches till further orders. RBI said that the bank violated listing norms and the remunerations of MD and CEO will stand frozen at existing levels. It had also said that it may impose further restrictions if the bank fails to make satisfactory progress towards listing of its shares.