ESAF small finance bank eyes big funding plans; to issue Rs300cr NCDs

ESAF small finance bank eyes big funding plans; to issue Rs300cr NCDs

By CL Jose

Aggregate borriowing limit to be raised to Rs5000 cr

KOCHI/January 27-2022: ESAF Small Finance Bank, the fourth and the latest entrant onto the list of Thrissur-headquartered banks, is planning to raise Rs300 crore through the issue of non-convertible debentures (NCDs).

Already, processes are on for the bank’s much-awaited initial public offer (IPO) for an aggregate amount of Rs997.8 crore, Rs800 crore being the fresh share issue and the remaining Rs197.8 crore, the offer for sale (OFS) part.

All the four sheduled banks in the state (Kerala), Federal Bank, South Indian Bank (SIB), CSB Bank and Dhanlaxmi Bank, barring Kerala Bank (from the cooperative sector), have already been listed on stock markets.

The ESAF board meeting held on January 13, has also decided to seek the shareholders’ green signal to raise the limit of the bank’s aggregate borrowings up from the current Rs3000 crore to Rs5000 crore.

As per the plans mooted by the board, the unsecured redeemable NCDs will be issued in one or more tranches on a private placement basis, and if things go well as planned, the Rs300 crore issue is likely to be concluded before the next AGM.

The bank had already postponed its IPO date once, and as per the fresh approval secured from the regulators, the IPO needs to be concluded by October this year (2022).

Listing deadline missed

In fact, ESAF has already failed to comply with the deadline to list its shares on a stock market. The bank was required to list its equity shares on a stock exchange in India before July 31, 2021.

“Under the provisions of the Small Finance Bank (SFB) Licensing Guidelines, the equity shares are required to be mandatorily listed on a stock exchange in India within three years from the date our bank reached a net worth of Rs5 billion (Rs500 crore), which we reached on July 31, 2018,” the bank has stated under the Risk Factors to IPO.

Consecutive losses

The losses reported by the bank in two consecutive quarters during FY22 – Rs15.85 crore (loss) in Q1 and Rs91.63 crore (loss) in Q2 (Q3 results yet to be released) may not bode well for the bank in the run-up to its IPO.

And a if a full-year loss befalls the bank, it could even exasperate the situation further for the bank, especially during an IPO year. Talking to, a stock broker based in Mumbai said the bank seems to be stuck in between the proverbial  ‘rock and a hard place’ as it can’t give a miss to its IPO once again.

Notwithstanding such dampeners, the bank is on a strong wicket in terms of its capital position. The bank with a net worth of Rs1244.50 crore (as of September end, 2021) and a debt-equity ratio of 1.03, enjoys a comfortable capital adequacy ratio (CAR) of 20.84 per cent (CRAR).

However, the bank whose top line is largely built of micro finance lending does carry a gross NPA of 6.31 per cent and a net NPA ratio of 2.13 per cent. With the kind of net worth and the size of funds expected to be raised through the forthcoming IPO and NCDs, the bank will be comfortably placed to expand its asset base and thus reduce the NPA ratios, too, soon.

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