Incorporated in 2016, ESAF Small Finance Bank focuses on the unbanked and under-banked customer segments and operates in rural and semi-urban areas. It primarily focuses on offering asset products.
Asset products include micro loans, retail loans such as gold, mortgage, vehicle loans, MSME (Micro, Small and Medium Enterprises) loans; loans to financial institutions and agriculture loans. On the other hand, liability products include current accounts, savings accounts, term deposits and recurring deposits. It also offers foreign currency exchange and safety lockers. It distributes third-party life and general insurance policies and Government pension products.
The bank offers services across India through a network of 700 banking outlets. But most of its business is concentrated in South India in Kerala and Tamil Nadu. As of 30 June 2023, over 62% of the banking network is in South India, while 73% of gross advances are from customers in South India.
The bank’s correspondent entities are responsible for sourcing and servicing customers for microfinance loans and other micro-loans, which it does not do by itself. In FY21, FY22 and FY23, they sourced or serviced 84%, 83% and 75% of the company’s total advances.
Between FY21 and FY23, it saw a CAGR rise of 24% in its AUM (Advances Under Management), 20% in its interest earned and 42% in its profit. Moreover, a CRISIL report expects SFB’s (Small Finance Bank) AUM to grow at a CAGR of 22% to 24% between 30 June 2023 and 31 March 2025 on account of the huge market opportunity in rural segment, presence of informal credit channels and geographic diversification, which could be beneficial for the company.
And now, ESAF Small Finance Bank Limited is coming out with its initial public offer (IPO). The IPO will be an offer for sale as well as a fresh issue. The money raised through the fresh issue will be utilised to augment the bank’s capital base, increase business by lending and to ensure compliance with regulatory requirements on capital adequacy prescribed by the RBI. Its shares will be listed on the NSE and the BSE.
- Focuses on the unbanked and under-banked customer segments and operates in rural and semi-urban areas.
- Offers asset products like micro loans, retail loans, MSME (Micro, Small and Medium Enterprises) loans, loans to financial institutions and agriculture loans…
- Present across India in 21 states and two union territories but concentrated in South India in the states of Kerala and Tamil Nadu.
- Network of 700 banking outlets, 767 customer service centres, 22 business correspondents, 2,116 banking agents, 525 business facilitators and 559 ATMs.
- Has served 7.15 million customers as of 30 June 2023.
- CAGR rise of 24% in its AUM (Advances Under Management), 20% in its interest earned and 42% in its profit in the last three years.
- A better understanding of the microloan segment because even though the bank was incorporated in 2016, the ESAF foundation has been active since 1995 when it started its micro loan activities.
- Focus on rural and semi-urban banking as rural centres have lower financial inclusion, which is why there is less competition and more opportunity.
- Growing retail deposits portfolio wherein its total deposits grew at a CAGR of 27% between FY21 and FY23.
- Customer centric products and processes allowed it to be awarded the ‘Kerala Bank of the Year 2019’ award, the ‘Banking Gold’ SKOCH award and the ‘Special Jury Award for Serving MSMEs’ among others.
- Technology-driven model offering various digital platforms such as internet banking portal, a mobile banking platform, SMS alerts, bill payments and RuPay branded ATM cum debit cards along with account opening and loan underwriting processes and a digitalised central credit-processing unit for micro loans.
Risks and threats
- A significant portion of its AUM comes from micro loans representing 84%, 81% and 75% of its AUM in FY21, FY22 and FY23, respectively. Micro loans and some of its retail loans are unsecured, meaning that they’re not supported by collateral, which made up 75% of the total advances (loans) in FY23.
- Subject to various sanctions, penalties and inspections by the Reserve Bank of India.
- Faces challenges related to the rural-focused business such as high cost of reaching customers, potential customers’ lack of financial and product awareness, vulnerability of household’s income and local developments.
- Employee attrition rate of 13%, 20% and 24% in FY21, FY22 and FY23, respectively.
- Does not have a presence in Jammu and Kashmir, Himachal Pradesh, and Manipur, three of the top five most underpenetrated states for microfinance loans as of 30 June 2023.
You can now apply for the ESAF Small Finance Bank Limited IPO on Upstox. Click here: ESAF Small Finance Bank Limited IPO - Details: ESAF Small Finance Bank Limited IPO date, Share Price, Lot Size, Allotment Status