ESAF Bank’s gross NPA now close to half of bank’s net worth

KOCHI: ESAF Small Finance Bank may face an uphill task in reining in its runaway gross NPA that has topped Rs1,242 crore, soaring multifold during the past one year.

More seriously, the gross NPA of the bank has grown close to half of its ‘own funds’ or net worth that is valued at Rs2,558.40 crore as of June end, 2024.

“This is serious. The bank may be able to contain the abnormal growth of NPA going forward, but the current trend doesn’t auger well for any bank, for that matter, and should be viewed seriously,” said a banking analyst while talking to businessbenchmark.news.

Mind you, the bank’s provision coverage ratio (PCR), which should ideally act like a cushion against the insidious NPA growth, has, in fact, dropped from 74.4 per cent to 61.9 per cent during the past one year.

ESAF Bank shares closed for trading today (July 30) at Rs50.43 on NSE, close to 52-week low of Rs49. The share had earlier scaled a 52-week high of Rs82.40.

Steepest growth

GNPA was the component that posted the steepest growth for ESAF Small Finance Bank in the past one year as it surged 422 per cent or more than four multiples, from Rs237.81 crore to Rs1,242.11 crore as of June end, 2024.

During the one-year period between June 2023 and June end 2024, the asset quality has indeed taken a big hit with the GNPA soaring from 1.65 per cent to 6.6 per cent of the loan book.

During the same period, the net NPA (NNPA) too spiked from 0.8 per cent to 3.2 per cent. In absolute terms the net NPA increased from Rs115.61 crore to Rs583.79 crore during the said period, reflecting a four-fold growth.

Loan growth dwarfed

Ironically, the loan growth during the same period has trailed the growth in NPA by far, as the growth in advances during this period was confined to just 14.3 per cent year-on-year (YoY) to Rs19,664 crore.

ESAF Bank’s NPA is displaying a grim picture at a time when the Indian banking system is going through one of its best periods ever in terms of asset quality.

A recent Reserve Bank of India (RBI) release has stated that the Indian banking system witnessed its lowest-ever net NPA of 0.6 per cent as the financial year 2023-24 (FY24) closed on March 31, 2024.

Best foot forward

In the wake of the poor quality of assets the bank is currently burdened with, ESAF Bank’s MD & CEO, K Paul Thomas has stated that the bank is putting its best foot forward and has initiated focused steps to rein in the significantly increased NPAs over the past few quarters.

Thomas expressed confidence that the GNPA will be brought below 3 per cent within a few quarters. He informed the media and analysts that the strategic initiatives to address the deterioration of the asset quality are already in place.