MC EXCLUSIVE Utkarsh, ESAF small finance banks gear up for equity raise

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26 Aug, 2025 12:21

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Two small finance banks — Uttar Pradesh headquartered Utkarsh SFB and Kerala-based ESAF — will soon kickstart their equity raising process, sources have sold Moneycontrol.

Utkarsh Small Finance Bank is expected to roll out a rights issue to mop up Rs 500–700 crore in the coming weeks and ESAF Small Finance Bank Ltd will likely make a formal announcement about its fund-raising plans over the next few days, they said.

“The (Utkarsh) bank has been engaged with investment bankers for a while for its fund raise and was initially planning for a qualified institutional placement. It has now decided to raise capital through a rights issue,” a banker aware of the development told Moneycontrol on condition of anonymity.

ESAF, too, is holding talks to finalise its plan. “Discussions are in the final stages, and it is likely that the board approves the bank’s equity raise by end of this week,” a person aware of the matter said. ESAF is expected to raise around Rs 500 crore of equity and may also opt for a rights issue.

Emails sent to Utkarsh and ESAF seeking confirmation of their capital raising plans remained unanswered till the publishing of the article.

Key to shore up capital

The past nine–12 months have been difficult for the microfinance industry. Utkarsh posted its first net loss for FY25 in the December quarter (Rs 168 crore). While it closed FY25 with a net profit of Rs 24 crore, the bank reported a loss of Rs 239 crore in the first quarter of this fiscal.

ESAF’s FY25 net loss widened to Rs 521 crore and it posted a loss Rs 81 crore in Q1 as well.

Non-performing assets ratios of these banks were far from comforting. At 11.42 percent gross NPA ratio in Q1FY26, up from FY25’s 9.43 percent, Utkarsh SFB is battling one of the worst bad loan crises.

ESAF is no better. Its gross NPA ratio swell to 7.5 percent in Q1FY26, up from 6.87 percent in FY25.

The capital adequacy levels of Utkarsh and ESAF stood at 19.6 percent and 18.4 percent respectively in Q1.

“Both banks need to shore up capital and hence the capital raise is imperative,” said a person aware of the development.

Utkarsh, which is in the process of its collapsing its holding company structure that houses the banking unit, announced its plan to raise equity in February.

For ESAF, the process has just about begun and it might take until end of this fiscal for the plans to fructify.

Steep discount to listing prices

For both ESAF and Utkarsh, this will be their first fund raises since listing. Both are trading at a deep discount to their listing prices and are priced below the book value, which is in-line with the broader trend for most SFBs.

Utkarsh listed in July 2023 at Rs 48 a share. It ended September 17 at Rs 21.56, a 55 percent drop in price since listing.

The ESAF SFB stock listed in November 2023 at Rs 71. It closed at at Rs 29.62 on September 15, down 58.28 percent from the listing price.