Cuts Target Size From Rs 1,000 Cr To Rs 629 Cr

With the highest 39.22% CAGR, ESAF Small Finance Bank is going public on improved balance sheet

MUMBAI, July 10 (The CONNECT) – ESAF Small Finance Bank Ltd, which focuses on the unbanked and under-banked customers, has filed its Draft Red Herring prospectus (DRHP) with capital market regulator Sebi to raise Rs 629.04 crore through for its initial public offering (IPO).

The Bank, which had earlier filed its DRHP in July 2021, could not complete the IPO process despite receiving the SEBI observations. The original size of the issue was around Rs 1,000 crores.

MD and CEO K P Thomas said, according to media reports, the bank was keen to improve its balance sheet before going for the public issue.

The latest DRHP says the bank has a high-quality asset portfolio, due to the target customer demographics, quality origination and credit assessment, technology and efficient collections. As at March 31, 2023, it had a GNPA Ratio (the ratio of Gross NPAs to gross advances) of 2.49% and an NNPA Ratio (the ratio of our Net NPAs to advances (net of provisions) of 1.13%.

Between March 31, 2021 and 2023, their assets under management (AUM) grew from ₹8,425.93 crore to ₹16,331.27 crore, with a compound annual growth rate (CAGR) of 39.22%, the highest among their peers according to the CRISIL MI&A Report mentioned in the DRHP.

Deposits also increased from ₹8,999.43 crore to ₹14,665.63 crore during the same period, registering a CAGR of 27.66%, the fourth highest growth among their peers. As of March 31, 2023, their Retail Deposits Ratio stood at 90.8%, the highest among their peers.

In May 2023, the bank received a rating of CareEdge ESG 3 (good) with an overall score of 71, surpassing the industry average overall score of 59.8. The ESG Grading was conducted by CARE Advisory Research & Training Limited’s ESG specialist team.

The IPO will include a fresh issue up to Rs 486.74 crore and an offer for sale of up to Rs 142.30 crore by Promoter and other selling shareholders.

The offer for sale comprises of up to Rs 119.26 crore by ESAF Financial Holdings Private Limited, up to Rs 12.67 crore by PNB MetLife India Insurance Company Limited, up to Rs 10.37 crore by Bajaj Allianz Life Insurance Company Limited.

The Offer is being made through the Book Building Process, wherein not more than 50% of the Net Offer shall be available for allocation on a proportionate basis to Qualified Institutional Buyers, not less than 15% of the Net Offer shall be available for allocation to Non-Institutional Bidders and not less than 35% of the Net Offer shall be available for allocation to Retail Individual Bidders.

The company, in consultation with the lead bankers to the issue, may consider a further issue of equity shares by a private placement or any other method aggregating up to Rs 97.33 crore. If such placement is completed, the fresh issue size will be reduced.

As per the DRHP, the proceeds from the Fresh Issue will be used towards augmenting the Bank’s Tier – I capital base to meet its future capital requirements.

In 2006, Kadambelil Paul Thomas and others acquired the Corporate Promoter of EASF Small Finance Bank. Later, in 2008, the micro loan business of ESAF Foundation was transferred to the Corporate Promoter through a business transfer agreement. The Corporate Promoter obtained NBFC-MFI status in 2014. The Promoters have a longstanding history of more than 27 years, primarily catering to the needs of the unserved and underserved, with a focus on promoting financial inclusion.

As a small finance bank, EASF requires at least 75.00% of its adjusted net bank credit is allocated to priority sectors. Their business model revolves around responsible banking principles, offering customer-centric products and services through innovative technology applications.

Its asset products include Micro Loans (comprising Microfinance Loans and Other Micro Loans), retail loans (such as gold loans, mortgages, personal loans, and vehicle loans), MSME loans, loans to financial institutions, and agricultural loans. As of March 31, 2023, 62.84% of their gross advances were directed towards customers in rural and semi-urban areas, and 71.71% of their banking outlets were located in these regions.

The bank has an extensive network of 700 banking outlets (including 59 business correspondent-operated banking outlets), 743 customer service centers (operated by their business correspondents), 20 business correspondents, 2,023 banking agents, 481 business facilitators, and 528 ATMs spread across 21 states and two union territories, serving a customer base of 6.83 million as of March 31, 2023.

The Bank has a strong emphasis on leveraging technology to provide products and services, continuously striving to enhance customer experience through technological advancements. They have achieved a significant milestone by successfully implementing e-signatures for Micro Loan disbursals. By March 31, 2023, they had disbursed over 0.53 million loans using e-signatures, demonstrating their commitment to digital progress.

Additionally, the bank offers various digital platforms to its customers, including an internet banking portal, a mobile banking platform, SMS alerts, bill payments, and RuPay branded ATM cum debit cards.

ICICI Securities Limited, DAM Capital Advisors Limited and Nuvama Wealth Management Limited (formerly known as Edelweiss Securities Limited) are the book running lead managers and Link Intime India Private Limited is the registrar to the offer. The equity shares are proposed to be listed on BSE and NSE.