ESAF Small Finance Bank IPO Review: ESAF Small Finance Bank is coming up with the IPO which is set to be listed on the NSE and  BSE. The IPO will be open for subscription on 3rd November 2023 and closes on 7th November 2023.

In this ESAF Small Finance Bank IPO review, we take a look the the banks operations, industry, financials, strengths, weaknesses, GMP & more.

ESAF Small Finance Bank IPO Review – About The Company

Established in 1992, the Evangelical Social Action Forum (ESAF) Bank is a small finance bank aimed at serving unbanked and under-banked customers, particularly in rural and semi-urban areas. As of 2023, it operates through a network of 700 banking outlets, 767 customer service centres, and 559 ATMs across 21 states and two union territories, serving 7.15 million customers. The bank manages assets worth 16,331Cr.

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ESAF Bank offers a range of products including micro loans, retail loans, MSME loans, loans to financial institutions, and agricultural loans. It has a strong presence in Kerala, with 43% of its banking outlets located there, and is expanding in other regions.

In terms of revenue, the bank earns 81% from interest income on advances, 10% from interest income on investments, 6% from commission income, and 3% from other sources.

Industry Overview

 The Indian Fintech industry is expected to reach US$ 150 billion by 2025, making it the third largest in the world. The Indian banking system comprises various types of banks, such as 12 public sector banks, 22 private sector banks, 46 foreign banks, 43 regional rural banks, 1485 urban cooperative banks and 96,000 rural cooperative banks, as well as cooperative credit institutions.

Despite the economic slowdown in Fiscal 2020, bank deposits grew by around 9%. There was also a shift of deposits from private-sector banks to public-sector banks.

The total assets of the public and private banking sectors increased significantly since 2020. In 2022-23, they were US$ 1,553.57 billion and US$ 901.3 billion, respectively.

The Indian banking industry has also seen the introduction of innovative banking models such as payments and small finance banks. The Government has launched two key initiatives to promote financial inclusion: the Pradhan Mantri Jan Dhan Yojana (PMJDY) and the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY).

The PMJDY aims to ensure that every household in India has a bank account with access to affordable financial services such as savings and deposit accounts, remittances, credit and insurance. The PMJJBY provides life insurance cover to eligible beneficiaries.

These schemes, along with major banking sector reforms such as digital payments, neo banking, the rise of Indian NBFCs and fintech, have improved India’s financial inclusion and stimulated the credit cycle in the country.

ESAF Small Finance Bank IPO – Financial Highlights

ESAF Bank has seen significant financial growth over the past years. The bank’s assets under management nearly doubled from ₹8,425 Cr in March 2021 to ₹16,331 Cr in March 2023. Concurrently, the bank’s deposits grew from ₹8,999 Cr to ₹14,665 Cr.

Revenue also saw a substantial increase, rising from ₹1,768 Cr in 2021 to ₹3,141 Cr in 2023. Concurrently, the bank’s borrowings have also increased from ₹1,694 Cr in March 2021 to ₹3,354 Cr in March 2023.

Profitability improved significantly as well, with profits rising from ₹105 Cr in 2021 to ₹302 Cr in 2023. The bank maintained a CASA ratio of 21.39%.

In the most recent quarter, the bank generated revenue of ₹991 Cr and reported a profit of ₹129 Cr.

Financial Metrics 

 (Source: RHP of the company)

Competitors of the company

Few of the listed industry peers include Suryoday Small Finance Bank Limited, CreditAccess Grameen Limited, Spandana Sphoorty Financial Limited, Bandhan Bank Limited, Ujjivan Small Finance Bank Limited, and Equitas Small Finance Bank Limited. 

Strengths of the company

  •  Robust Growth: ESAF Bank has demonstrated strong growth, with total deposits increasing from ₹89.99 CR in March 2021 to ₹146.65 CR in March 2023, a compound annual growth rate (CAGR) of 27.66%.
  •   Digital Innovation: The bank offers a variety of digital platforms, including internet banking, mobile banking, SMS alerts, bill payments, and RuPay branded ATM cum debit cards. It has also successfully adopted e-signatures for Micro Loan disbursals, with over 0.53 million loans disbursed using this technology in Fiscal 2023.
  • Deep Market Penetration: With a strong understanding of the micro loan segment, ESAF Bank serves 3.5 million customers across 21 states and 2 union territories. Approximately 42.3% of its micro loan customers are located outside of Kerala, demonstrating its ability to expand its business beyond its home state.
  • Customer-Centric Approach: ESAF Bank focuses on serving customers in rural and semi-urban centres through customer-centric products and processes. It also provides non-financial services for Micro Loan customers, further strengthening its customer relationships.

Weaknesses of the company

  •   Rural Challenges: The bank’s rural-focused Microfinance Loan business faces several challenges, including high customer acquisition costs, potential customers’ lack of financial and product awareness, and the vulnerability of household income to local developments.
  • Unsecured Advances: As of 2023, 75% of the bank’s advances were unsecured. Micro Loans and some retail loans are at a higher credit risk as they are not supported by collateral. This could adversely affect the bank’s financial condition, results of operations, and cash flows if these advances cannot be recovered in a timely manner or at all.
  • Geographical Concentration: More than 62% of ESAF Bank’s outlets are located in South India, particularly in the states of Kerala and Tamil Nadu. Any adverse change in the economy of these regions could negatively impact the bank’s financial condition, results of operations, and cash flows.
  • Customer Vulnerability: The income of the bank’s target customers – households in rural and semi-urban areas – is often unstable and vulnerable to local developments. This could adversely affect the bank’s business if these customers are unable to repay their loans.

ESAF Small Finance Bank IPO Review – GMP 

As of October 31st October 2023, The IPO for ESAF small finance is set at a price band of ₹50-₹60  per share. The latest grey market price stands at ₹9.  The IPO is projected to list at a premium of 15%, with an estimated listing price of ₹69. 

Key IPO Information

PARTICULARSDETAILS
IPO Size463 Cr
Fresh Issue390.7 Cr
Offer for sale 72.3 Cr
opening date 3rd November 2023
closing date7th November 2023
face value ₹10 per share
price band₹57 to ₹60 per share
lot size 250 shares
Minimum lot 1 (250 shares)
maximum lot 13 (3250 shares)
Investment amount ₹15,000
listing date 16th November 2023

Promoters: Kadambelil Paul Thomas and ESAF Financial Holdings Private Limited are the promoters of the company.

 Book Running Lead Manager: ICIC securities limited, Dam capital Advisors limited, Nuvama wealth management limited. 

 Registrar to the Offer: Link Intime India Private Limited 

The Objective of the Issue: 

The Net Proceeds are proposed to be utilized towards augmentation of the Bank’s Tier-I capital base to meet the Bank’s future capital requirements which are expected to arise out of growth in the Bank’s assets, primarily the Bank’s loans/advances and investment portfolio and to ensure compliance with regulatory requirements on capital adequacy prescribed by the RBI from time to time.

In Closing

ESAF Bank, with a 27.6% CAGR in deposits over the past three years, aims to further grow by increasing retail deposits and targeting NRIs. The bank plans to deepen its reach in rural centres, where financial inclusion is lower, and expand its retail loan business. It also intends to continue growing its Micro Loans and other categories of advances.

Written By Niharika Jadhav

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