With 80-85% loan repayment, ESAF Small Finance Bank expects few defaults at end of moratorium

Chief Executive Officer and CEO K Paul Thomas said the IPO call would be taken after September following a review of the company and the macro environment

ESAF Small Finance Bank expects very few defaults as it said loan repayments were 80-85% in the first week of September, after the moratorium period ended on the 31st. August. The small Kerala-based financial lender holds over 96% of its exposure to the micro segment, where the average loan note size is Rs 33,000.

“Almost 100% of loan clients took advantage of the moratorium in the first two months (April and May) and it fell to 80% in June-July, and by August it had fallen to 60%. With the exception of small, city-based commercial businesses, we don’t see a lot of repayment issues. We don’t have a lot of exposure in the corporate sector as we mainly focus on the retail sector, ”said K Paul Thomas, Managing Director and CEO of ESAF.

Thomas added that business had returned to normal in rural areas, with rural agriculture and ranching clients showing more resilience. The rebound was slower in urban areas, with sectors such as tourism, restaurants and small businesses being the hardest hit.

“We have past experience in dealing with disasters such as the 2018 floods and we don’t see any issues. We have a daily collection and also a weekly collection in the micro-sector. However, we estimate a little more behind in the MSME segment as it may take longer to return to normal, ”he added.

Regarding credit demand, Thomas said it was low, at 50% of pre-Covid levels, and sluggish. The bank estimated a decline in activity in the current fiscal year, with the foreclosure impacting lending. The CEO said the bank would call on its initial public offering (IPO) plans after a review of the business and macro environment after September. ESAF obtained SEBI’s approval in March to raise capital.

The bank reported net profit of Rs 190.39 crore in FY20, an increase of 110.86% from the period of the previous year. Business in the last fiscal year grew 49.05% year over year to touch Rs 13,846 crore.

The bank was launched in March 2017 and, two years after its operations, it became a programmed bank in December 2018.

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