ICRA Nepal assigns Grade 4+ to 50% right share of Swarojgar Laghubitta Bikas Bank

ICRA Nepal has assigned [ICRANP] IPO Grade 4+ to the upcoming 2:1 right shares of Swarojgar Laghubitta Bikas Bank Limited (SLBBL), indicating below-average fundamentals. SLBBL is proposing to issue 349,994 units right shares worth Rs 3.49 crore to its existing shareholders at par value of Rs 100 per share. As per ICRA Nepal, the grading factors in SLBBL’s ability to achieve high portfolio growth through expansion in its clientele base. Its asset quality remains comfortable with healthy profitability profile. Given its experience management team, it has adequate growth opportunities and has plans of expansion over new geographies. However, the grading is constrained by the recent regulatory restriction of lending rates at 18% for microfinance institutions. Additionally, monetary policy of this fiscal year also requires commercial banks to directly lend 2% to deprived sectors, which could lead to decrease in funding support to microfinance sectors. The grading also takes into account SLBBL’s high cost of funds, tightening liquidity scenario, competition from established competitors and its significant exposure to high ticket collateralized loans. Going forward, ability of the company to maintain sustainable growth and generate scale economies through geographical expansion while maintaining commensurate risk mitigation practices would be critical. Swarojgar Laghubitta Bikas Bank Limited has earned net profit of Rs 1.42 crore in the second quarter of the FY 2073/74. Established in July 2009 as a 3-district level class D microfinance institution, SLBBL now has presence across 29 branches in 10 districts. Its promoter – general public shareholding structure stands at 70% - 30%. After issuance of 50% right share, its paid up capital will reach Rs 10.49 crore.