ESAF Small Finance Bank gets Sebi approval to float Rs 976 crore IPO

Kerala-based ESAF Small Finance Bank has got permission to float an initial public offering (IPO).  The Bank had filed its Draft Red Herring Prospectus (DRHP) on January 6, 2020 with markets regulator Securities and Exchange Board of India for an Rs 976 crore Initial Public Offering (IPO).

SEBI issued the final observations to the lenders proposal on March 20, 2020.

According to the DRHP, the IPO comprises of a fresh issue worth Rs 800 crore and an Offer for Sale (OFS) aggregating up to Rs 176.2 crore.

The bank, in consultation with its Book Running Lead Managers (BRLMs) may consider a pre-IPO placement of up to Rs 300 crore. If it is undertaken, the amount raised will be reduced from the fresh issue, the DRHP states.

The BRLMs to the offer are Axis Capital Limited, Edelweiss Financial Services Limited, ICICI Securities Limited and IIFL Securities Limited.

According to the DRHP, not less than 75 per cent of the offer will be available for allocation to qualified institutional buyers (QIBs). Further, not more than 15 per cent of the offer will be available for allocation on a proportionate basis to non-institutional bidders and not more than 10 per cent of the offer will be available for the allocation to retail individual bidders.

The net proceeds from the fresh issue will be used to augment the bank’s tier 1 capital (primarily loans/advances and investment portfolio) to meet future capital requirements.

One of the leading small finance banks in terms of yield on advances, AUM growth rate and share of retail deposits as per a CRISIL report, ESAF Small Finance Bank currently operates in 16 states and 1 union territory through its 403 branches and 38 ultra-Small branches, serving over 3.73 million customers.

Microfinance loans accounted 95.75 per cent of the total gross advances. ESAF’s loan book outside Kerala has grown from Rs 5490 million in March 2017 to Rs 25,402.45 million as at September 30, 2019 which is 48.46 per cent of the total microfinance loan book size, while the total gross advance as at September 30, 2019 stood at Rs 54,742.35 million 

The bank’s net profit increased from Rs 240.60 million in September 2018 to Rs 924.40 million in September 2019 and the interest earned increased from Rs 4722.58 million in September 2018 to Rs 6606.83 million in September 2019.

The DRHP states that it will continue to focus on its rural and semi urban franchisees and increase deposits across NRIs and CASA.  As on date, it stands to have the highest share of retail deposits as a percentage to the total deposits when compared to the other small finance banks.

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