ESAF Small Finance Bank looks for foreign equity partner

Kerala-based ESAF Small Finance Bank has begun talks to find a foreign equity partner, more than a year after it received a licence from the Reserve Bank of India (RBI) to set up a Small Finance Bank (SFB).

“We are in talks with foreign investors. But the talks are in initial stages, and by the next (financial) quarter, it (deal) might get formalised…in the form of equity,” ESAF’s managing director and chief executive officer (CEO), K Paul Thomas, told Business Standard on Monday. He was speaking on the sidelines of the bank’s announcement to open its first branch in the National Capital Region (NCR) on Tuesday.

Foreign shareholding for Small Finance Banks is in accordance with the foreign direct investment (FDI) norms for private sector banks. Current norms allow 49 per cent foreign investment through the automatic route and 74 per cent through the RBI’s approval.

ESAF bank is in talks with foreign investors at a time when it plans to go for the next round of capital infusion. “We are planning to raise equity in the range of Rs 300-Rs 500 crore, which will be possible either in the last quarter of this financial year or the first quarter of 2018-19,” Thomas said.

ESAF was among 10 applicant banks to get the RBI’s in-principle approval to set up an SFB. SFBs are similar to commercial lenders, and undertake basic banking activities of accepting deposits and lending to the un-served and under-served sections. The maximum loan size and investment limit exposure to single and group obligators cannot be more than 10 per cent and 15 per cent of its capital funds, respectively.

The Kerala-based bank has collected Rs 1,450 crore since it began operations in March, and has a loan books of around Rs 3,500 crore. 

The bank has 371 banking outlets, including 62 new retail banking outlets, covering 10 states. With the opening up of its outlet in Delhi, it aims to target the urban poor with its financial products, Thomas said. 

“We will offer daily collection loans. The urban poor have good cash flows. The problem is they need to make payout on a daily basis. We experimented in Nagpur where loans were extended to the poor working in vegetable markets who prefer to borrow from moneylenders in the morning and give the money back in the evening,” he said. The loan amount is repaid on a daily basis under the daily collection loans system.