ESAF Small Finance Bank is set to launch its initial public offering (IPO) on Friday. The bank aims to secure Rs 463 crore ($61.3 million) in funding through fresh equity shares and an offer for sale involving PNB Metlife (NYSE:MET) and Bajaj Allianz (ETR:ALVG) Life Insurance. The funds are intended to fortify the bank's Tier-1 capital base and support its lending expansion. The IPO has been set with a price band of Rs 57–60 per share.
ESAF, founded in March 2017 and included in the RBI Act by November 2018, primarily services unbanked and underbanked segments in rural and semi-urban areas. A significant number of their branches are dedicated to these sectors. Between March 2021 and 2023, the bank's assets nearly doubled, demonstrating robust growth.
The bank operates through 700 banking outlets and 767 customer service centres, with a substantial presence (62%) in southern India, particularly Kerala and Tamil Nadu. Despite a high attrition rate of 24% in the fiscal year 2022–23, ESAF continues to expand.
However, the bank faces challenges due to non-compliance with risk-based supervision tranche III requirements. It also has a high dependence on micro loans, which constitute 75% of advances, and a large portion of unsecured advances (75%). ESAF relies heavily on correspondents for sourcing gross advances and has a high concentration of deposits in Kerala and Tamil Nadu. These factors could potentially impact the success of the upcoming IPO.
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