NESFB offloads stressed micro-loans over Rs 500 cr to clean up books

To raise fresh capital upto Rs 200 crore

North East Small Finance Bank (NESFB) has sold stressed loans in its microfinance portfolio of over Rs 500 crore to Edelweiss Asset Reconstruction Company (ARC) as a step to clean up its books and release capital ahead of a proposed merger with Slice group.

Even after the sale of stressed assets, the bank's capital adequacy ratio remains below the regulatory requirement of 15 per cent, mandated for small finance banks. NESFB is in the process of raising fresh capital of up to Rs 200 crore in the current financial year. This capital infusion is expected to meet capital adequacy norms and create a base for further rounds of capital infusion, the bank's executives said.

Following the sale of the stressed asset portfolio, the Non-Performing Assets (NPA) percentage of the bank significantly decreased to approximately nil as of September 30, 2023. This is down from 25 per cent before the sale (as of June 30, 2023), said the Guwahati-based lender in response to queries from Business Standard.

The bank sold its entire stressed loan portfolio of Rs 535.23 crore (excluding technical write-offs) to Edelweiss ARC with a cut-off date of September 30, 2023. The bank received about Rs 150 crore towards the sales consideration of this portfolio, and it subscribed to investment in security receipts of Rs 127.4 crore issued by the asset reconstruction company.

According to rating agency CRISIL, after factoring in the effect of capital raised in October 2023 and the sale of stressed loans, the Capital Adequacy Ratio (CAR) is estimated at 6.0 per cent. The tier-I capital stood at 3.7 per cent as of November 30, 2023. NESFB raised Rs 50 crore in equity capital in October 2023, the bank said in a response to the queries.

The Reserve Bank of India has given a “No Objection Certificate” for the proposed scheme of arrangement between NESFB and Slice Group entities - Garagepreneurs Internet Pvt Ltd (GIPL), including its subsidiaries Quadrillion Finance Pvt Ltd (QFPL) and Intergalactic Foundry Pvt Ltd (IFPL). The Slice Group entities will be amalgamated into NESFB. The scheme is expected to come into effect in two to four quarters.