Thrissur-based ESAF Small Finance Bank (SFB) does not see the Reserve Bank of India’s (RBI) latest risk weight norm for consumer unsecured loans affecting its business. In an exclusive interaction with Moneycontrol after announcing the bank’s July-September FY24 quarter results, Kadambelil Paul Thomas, its Managing Director and Chief Executive Officer, noted that ESAF draws a lot of its business from the microfinance segment.
The new risk weight norm would not affect the bank as “we do not have any credit card or other personal loan business”, Thomas said. But the bank, he added, would have to add an additional risk weight to its non-banking financial companies (NBFC) book.
For the Q2FY24 quarter, ESAF SFB reported a net interest margin (NIM) of 11.98 percent. “Our NIM has been stable, but due to the rising cost of funds, we will see some pressure in our NIMs,” Thomas said.
Also read: Banks, NBFCs may raise rates after RBI’s action on consumer loans, experts say
Edited excerpts:
What is your assessment of the Q2FY24 performance?
Our performance in the July-September FY24 quarter was overall good. The net profit in the quarter was stable, with our deposit growing by around 28 percent.
During the quarter, our total assets under management (AUM) grew by 37 percent, with 75 percent of our portfolio in the microfinance segment, 18 percent in loans against gold, and the rest distributed among affordable housing and other loans.
The RBI’s recent increase in risk weightage for banks and NBFCs is expected to affect banks. Your bank has a lot of unsecured business, so how do you see the new norm affecting your business?
The majority of our unsecured business is towards the microfinance segment. The RBI’s recent norm on risk weightage will not affect our business as we do not have any credit card or other personal loan business.
But currently, our NBFC book stands at Rs 654 crore, with 70 percent of our loans with 100 percent risk weightage. So here, we will have to make an additional risk weightage.
Your bank is dependent on business correspondents (BCs). How do you see that working from here on?
Currently, we have 22 institutional BCs for our business. In the next two-three years, we plan to bring this number down.
We have seen your bank expanding geographically to newer states. Can you highlight some details on how you plan to grow?
We have a presence in 21 states and two union territories. In the past few months, we have seen high growth in Rajasthan, Uttar Pradesh, Haryana and Orissa. And we plan to grow more in Chhattisgarh, West Bengal, Jharkhand and Madhya Pradesh.
In the South, we did not look at growing aggressively in Andhra Pradesh and Telangana but we plan to work here soon. Additionally, around 40 percent of our business comes from Kerala and we plan to bring this down to 25 percent.
Compared to your peers, your NIM has seen healthy growth. How do you see this going ahead?
In Q2FY24, our NIM was at 11.98 percent. Going ahead, we will see a rise in the cost of funds, which will affect our NIM. Hence, we will look at maintaining an NIM between 9.5 and 10 percent.
In the past few months, some mergers and acquisitions have happened in the SFB space. How do you see this and what about your bank? Any plans to merge or acquire another SFB, fintech or a NBFC?
Also read: Recent small finance bank mergers driven by search for higher return on investments, say experts
This is a company to company strategy we have seen in the SFB space. We are looking at SFB as a growing space.
But in our case, we have no immediate plans to acquire or merge with any financial institution. In future, if any opportunity arises, we will look at the options and our situation.
Lastly, can you give some guidance on your deposit and credit growth?
Our deposit growth has been in line with our expectations. Going ahead, we would like to grow our deposits and credit by 25-30 percent.
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