Kolkata: The Equitas Small Finance has begun exploring the possibility of a merger with a non-bank lender as a follow-up measure to pare promoters’ holding to 40% as mandated by the Reserve Bank of India.

The bank’s initial public offer (IPO), which will be open for subscription on October 20, would help it to reduce promoter holding to about 82% from 95%. As per the licensing agreement with RBI, the bank needs to pare it further to 40% by September 2021.

Managing director PN Vasudevan told ET that the bank would explore both the M&A route and the block sale of shares to comply with the regulation.

He said that Equitas would be keen to explore a merger with a non-bank lender either in the housing finance or vehicle finance space or any other areas where it has already diversified. “It will be easier to integrate with such a lender as we have already gained business expertise in the areas we diversified,” he said.

Equitas has even identified a few potential candidates.

Out of Rs Rs 15600 crore loan portfolio as of June, small business loans including home loans contributes 42% followed by microfinance (23%), vehicle finance (24%), corporate loans (5%) and others (6%).

Bandhan Bank, India’s first experiment with a microfinance lender converting into a universal bank, had also followed a two-pronged strategy of merger and block deal for reducing promoters’ stake to the regulatory minimum.

For small finance banks, if the initial shareholding of the promoters is more than 40%, it should be brought down to 40% within a period of five years from the date of commencement of business and thereafter to 30% within 10 years and to 26% within 12 years.

If an SFB reaches the net worth of Rs 500 crore, listing is mandatory within three years of reaching that net worth. Equitas’ IPO consists of a fresh issue aggregating up to Rs 280 crore and an offer for sale of up to 7.2 crore equity shares at Rs 32-33 price band.

The offer will close on October 22.

The promoter Equitas Holding Ltd will lap the offer for sale to reduce its stake.

Earlier, the group had sought RBI’s permission for a reverse merger of the promoter with the bank. The regulator had then told it that such a request would only be considered after the promoter comply with the minimum holding rule.