ESAF Bank to sell ₹735 cr in NPAs, write-offs amid MFI sector stress

ESAF Small Finance Bank approves sale of ₹735 crore in stressed loans to ARCs, with over 90% provisioned; microfinance delinquencies continue to weigh on sector

ESAF Small Finance Bank on Wednesday said its board has approved the sale of ₹735 crore worth of non-performing and written-off loans to asset reconstruction companies (ARCs).

 

Of the ₹735 crore, ₹362.43 crore are non-performing loans, while ₹372.75 crore are technically written-off loans. The bank said it is carrying an overall provision of 90.15 per cent against these assets.

 

While the bank did not specify the type of loans being sold, the small finance banking sector has been witnessing rising stress, particularly in the microfinance segment.

 

Previously, Asset Reconstruction Company (India) Ltd (ARCIL) acquired Ujjivan Small Finance Bank’s non-performing microfinance portfolio of ₹365.5 crore for ₹34.26 crore, translating into a recovery of just 9.39 per cent — or a haircut of over 90 per cent for the lender. 

 

 

Earlier, IndusInd Bank invited bids from ARCs to offload ₹1,573 crore of non-performing microfinance retail loans from over a million accounts. Utkarsh Small Finance Bank also sought to offload around ₹355 crore of microfinance loans and had set a reserve price of ₹52 crore.

 

The microfinance sector has been grappling with persistent challenges over the past several quarters, leading to a significant deterioration in asset quality. Industry-wide stress has mounted due to unchecked credit growth and the issuance of multiple loans to the same borrowers, resulting in widespread overleveraging.

 

Major banks and microfinance-focused non-banking financial companies (NBFCs) have reported a sharp rise in delinquencies in this segment. As a result, several lenders have started selling off their stressed loan portfolios to asset reconstruction companies.