ESAF Small Finance Bank aims to downsize loan share in Kerala

Bank has embarked on measures to bring down micro loans to 60% by expanding combined loan book

CL Jose

Kochi: ESAF Small Finance Bank is obviously worried over the insidiously rising stress in the loans disbursed in Kerala and Tamil Nadu.

The gross non-performing assets (NPAs) number now stays at an unhealthy 4.8 per cent, the highest in the past more than a year, with the net NPA reaching one of the highest in recent times at 2.3 per cent.

The bank also hopes to reduce the share of micro loans to 60 per cent from as high as 70 per cent by the organic expansion of the loan book.

The bank has already embarked on measures to bring down the loan book size in Kerala and Tamil Nadu. K Paul Thomas, the managing director (MD) and CEO of the ESAF SFB said the bank aims to prune the loan book in Kerala down to 25 per cent within three years – by 2026-27 (FY27).

The bank said it had sharply reduced fresh lending in these states to restrain the proliferation of NPAs, which if left unbridled could raise the spectre of unsustainably high bad loan pile-up

While Kerala and Tamil Nadu together accounted for about 61 per cent of the bank’s loans as of the end-third quarter, the combined loans within these states dropped to 58.1 per cent by the close of the financial year FY24, with Kerala alone holding a share of 36.4 per cent and Tamil Nadu another 21.7 per cent.

Growing bad loans has been a pain in the neck for the bank, especially for the past two quarters, and Kerala and Tamil Nadu are said to have been instrumental to this trend to an extent.

A close analysis of the movement of bad loans (NPA) during the past two quarters reveals that while the third quarter that ended December 31, 2023 (Q3) added Rs335.4 crore worth NPAs, the fourth quarter ending March 31, 2024, alone piled up another Rs327.6 crore, thus taking the gross NPA up to Rs893 crore as of year-end (FY24).

Loans came down fast in Kerala

The bank has been able to address the challenge of the high single-state concentration of loans in Kerala by downsizing the loan book in the state steadily over the past few quarters.

ESAF SFB’s assets under management (AUM) in Kerala were at 46 per cent as on March 31, 2022, which came down to 42 per cent as on March 31, 2023, and then to 39 per cent as on December 31, 2023.

The top three states constituted 73 per cent of the overall portfolio of ESAF SFB as on March 31, 2023, and December 31, 2023. ESAF SFB may be the private sector bank that accommodates the largest single shareholder with ESAF Financial Holdings Pvt Ltd alone holding 52.94 per cent in the bank.

Another bank with a higher single entity stake is also from Thrissur as Fairfax India Holding (FIH) owns 49.27 per cent in CSB Bank.

While ESAF reported a net profit of Rs426 crore against Rs302 crore in the earlier year, the bank maintains a very healthy capital adequacy ratio (CAR) of 23.3 per cent as of March end, 2024.