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ESAF SMALL FINANCE BANK LIMITEDRBI License No.; MUM 124. CIN: U6S990KL2016PLC045669' .Registered & Corporate Office: ESAF Small Finance Bank Limited. Building No. VII/83/8, ESAF Bhavan.Mannuthy.Thrissur - Palakkad National Highway. Thrissur - 680 651. Kerala.Ph. No: 0487 712345A 123457. Email: [email protected] www.esafbank.com'
( .. Building No.VII/83/8 )AeSAF Bhavan, Ma'nnuthy A,
CompanyTSecretaryMembership No: A 30388
Enclos^d herewith the rating letter issued by CARE Ratings for your reference.
;We request you to kindly take the above documents on record.
iThankirig you,....
Yours Faithfully,V
For ESAF Small Finance Bank Limited,
Reaffirmed
Rating Action
CARE A; Stable (Single A;Outlook: Stable)
Rating
125.00
Amount (Rs. Crore)
Tier II Bond issue
Facilities. ;. ^ -. - ;
Dear.Sir/Madam,; v ,.
Subject: Intimation of Reaffirmation of Credit Rating;
We hereby intimate that CARE Ratings via letter dated March 02, 2020, as part of annualrating surveillance exercise has reaffirmed the credit Rating of the Bank's Non-ConvertibleDebentures (NCDs) and the details of the same are as follows:
to, •-•...•..;, '••• ;
Department of Corporate ServicesBSE LimitedPhiroze Jeejeebhoy Towers,Dalai StreetMumbai - 400 001
10th March, 2020
EJESAFESAF SHALL FINANCE BANK
Joy of Banking
.1-'--,' '• -:' • -' • \- - ,' •
Unit No. O-509/C, Spcnear Plaza, 5th Floor,No: 769, Anna 5alal, Chehiiai - 600002.
Tel: +91 -44-2849 0811/13/ 76 / 2850 1003Tel./ Fax: +91-44-2849 7812
CORPORATE OFFICE; 4* Floor, <5odrl Col'seuro, Somalya Hospital Road,Off Eastern Express Highway, Sion (E). Mumbai - 400 022.Te!,:+91-22-675434S6 . Fax+91-22-6754 3457Etnail:care(51carerattng*.com • www.careratlngs.com
c i >i Lii?; v .̂!;; 9 -3vice, n ;.r- \
CARE Ratings Limited
'Complete deflnitionssof the ratings assigned are available at www.care.ratinas.com and in other CAREpublications.
1
4, The rationale for the rating will be communicated to you separately. A write-up (press
release) on the above rating is proposed to be issued to the press shortly, a draft of
investorsof top 10
Details
TrusteeDebenturedetails ofcontact
Name anddate
RedemptionRedemption
Terms of
DatesPaymentCoupon
RateCoupon
!i cr>i (Rs! Size
I5IN ! Issuetype
Instrument
^outstanding amount of Rs.80 crore as on February 25,2020
2.Details of the instruments are provided in Annexure i
3.Please inform us the below-mentioned details of issue immediately, but not later than 7
days from the date of placing the instrument:
Reaffirmed
Rating Action
CARE A; Stable(Single A;
Outlook: Stable)
Rating1
Tier II Bond facilities 125*| (Rs. One Hundred and1 Twenty Five crore only)
Amount{Rs. crore)
Instrument
On the basis of recent developments including operational and financial performance of
your bank for FY19 (Audited) and H1FY20 (Provisional), our Rating Committee has
reviewed the following ratings:
Credit rating for Debt facilities
Confidential
Dear Sir,
March 2, 2020
>atmgsProfessional Risk Opinion
CARE/CRO/RL/2019-20/1791
Mr. K Paul ThomasManaging Director & CEOESAF Small Finance Bank LimitedESAF Bhavan, Mannuthy P.O.,Thrissur, Kerala - 680 651
Unit No. O-509/C, Spencer Plate. 5th Floor. No. 769. Anna SaJai, Chcnnal - 600002.Tel:+91-44-2S490811/13/76/28301C00 Tel./Fax:+91-44-28497812 . vAvw.carefatingscom . CIN-L67190M81993PIC071691
CARE Ratings Limited
DisclaimerCARE's ratings are opinions on the likelihood of timely payment of the obligations under, the ratedinstrument and are not recommendations to sanction, renew, disburse or recall the concerned bank facilitiesor to buy, seli or hold any security. CARE's ratings do not convey suitability or price for the investor. CARE'sratings do not constitute an audit on the rated entity. CARE has based its ratings/outlooks on informationobtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee theaccuracy, adequacy or completeness of any information and is not responsible for any errors or omissions orfor the results obtained from the use of such information. Most entities whose bank facilities/instrumentsare rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments.CARE or its subsidiaries/associates may also have other commercial transactions with the entity. In case ofpartnership/proprietary concerns, the rating /outlook assigned by CARE is, inter-alia, based on the capitaldeployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlookmay undergo change in case of withdrawal of capita! or the unsecured loans brought in by thepartners/proprietor in addition to the financial performance and other relevant factors. CARE is notresponsible for any errors and states that it has no financial liability whatsoever to the users of CARE'srating.
CARE's ratings do not factor in any rating related trigger clauses as per the terms of the facility/instrument,which may involve acceleration of payments in case of rating downgrades. However, if any such clauses areintroduced and if triggered, the ratings may see volatility and sharp downgrades.•
••• End;; ^s above
Ravi Shankaf JR.Manager; \
:rav't.s(5)carer3tings.cQm
Meenakshi D:: M^nag^r;. :: •:
meenakshi;[email protected]
Yours faithfully,
Thanking you,
If you need any clarification, you are welcome to approach us in this regard.
;- V : : : UmtNb.6-S09/C, Spencor Plaii, 5th Floor, No. 769, Anna Salai. Chonnsi-^00002.'JTel:+9l-44-Z84?p811/13/76/:2850100a> Tejy Fax:*9l-44-2849 7312 . www.careratlngs.com • CtN-l67190MH1993PLC07169t
CARE Ratings Limited
CARE A; Stable
CARE A; Stable
CARE A; Stable
CARE A; Stable
Ratingassigned ;
along withRating
Outlook:
45.00
40.00
20.00
, 20.00
Size ofthe
Issue(Rs.
crore)
-
01-Jun-
2025
28-Mar-
2G25
30-Dec-
2024
MaturityOate
*
11.50%
11.50%
10.50%
Coupon
Rate
-
Ol-Jun-
2018
28-Mar-
2018
30-Dec-
2017
Oate ofIssuance
-
INE818W08032
1NE818W08024
INE818W08016
ISIN
Tier II Bonds(Proposed)
Tier 1$ Bonds
Tier II Bonds
Tier II Bonds
Name of theInstrument
ANNEXUREI
^Complete .defitiiiian -of:fhe: ^atings "assigned, are available at vr^w.careratinss.cnm and^otherpublications. .:.
1 i
Details of instruments/facilities in Annexure^l
Detailed Rationale & Key Rating Drivers
The ratings assigned to the debt instruments and certificate of depositsof ESAF Small Finance Bank Ltd
{ESAF SFB) factors in:comfortabte capitalisation profile and growth inoverail business of the bank and
improving profitabilitydurihg :FY19(refers to the period •April 01 to March 31); and HlFy20{refers t: the
.period April QJ; to. September 30). The ratings cdptinue; to factor irt ekperienpe of thie prompter. &
management team in the^tending business^ithe group's significant ^xperience in microfihance loans and
comfortable liquidity position. Theratings are, however, constrained by regionally concentrated nature of
business; itmiteddiversificatbntn loan portfolio which mainly consists of micro finance loans.^
The ratings assigned to the long^term bank facilities is withdrawn with immediate effect, as the bank has ,
fully repaid the amount under^thes^id facility and there is^^ no amount dilfstahdiiig as on date.
Rating :SehsifivitiesPositiv^ factors.. :•
;•: .increase the scale of operations across newer; geographies a^d improve: product mix of advancesbook while maintaining gdod asset quality on a sustainedbasis.
Negative Factors'•
*• Weakening of asset quality on sustained basis• Weakening of capital adequacy with CARdeclining below 17% ph.a.sustained basis••
Withdrawn
Reaffirmed
Reaffirmed
. Rating Action
CAREA1+JA One Plus)
CARE A; Stable(Single A; Outlook:
: Stable)-;;
Rating2
; 5oo,oo ;
• '; 125.00 •"•' ^ ^
Amount •;'"(Rsicrorej
Long term Bank Facilities
Certificate of Deposits;(Proposed)
Tier II Bond issue
Facilities:
Ratings
Annexure
Press Release
ESAF Small iFlriahce Bank
Detailed description of the key rating driversrKey Rating Strengths
ExpeHence of promoter and management team: E^^\^ SFB wasprornqted by Mr. K PaulThomas, who is
the founder of ESAF group and holds 7.3% stake in ESAF SFB as on Deeember^l, 2019. He has over32.
years of industry experience, of which more than 22 years are in the microfinahce sector. He is supported
by Weil qualified and experienced management team.which has rich experience in the banking: and
financial services sector. The bank, has been augmenting its senior management team by recruiting
professionals frpm. the. banking: and financial, sector. As, on December 31, 2019, the bank's board
comprised of eight' ^irectqts including five Indep^ndent djrectprs: who hayehth:experience: in :banking
and financial servioes'industry.;:
Comfortable capitalisation levels: The bank's capitalisation; profile is comfortable supported by the
capital infusion; of Rs:464 crore through private placement of eqpity shar^s duringSeptember 2018. As on
March 31, 2019, the CAR and Tier I ratiostood at 27-59% and23.30% respectively (25.69%and 21.99% as
on Sjepterhber^pl 2019) as against 16.92% and 12.40%as on. MarchPl/2018.
Improvement in advances} However share of MFI logos continues to be high: ESAF SFB's AUM improved
'by 22% during FY19 and stood: at Rs.5,Q60 crore as on March 31,;2019 (PY:Rs.4;131 crorefand during
: HlFY20;.AUiyi improved by 10% and stood at RSi5,559 crore as on September 30, 2019, Post transition to
SFB,: ESAF SFB has introduced new: products like LAP (Loan against Property},: business loans,, corporate
loans/gold |o3n> etc. flevertbeiess, the microfinance loan boqk stood af 97%.ofifhe AUM as on. MafchBl,
:2Q19f(^6%'Of the AUM a^dnSeptember 30, 2019) as against: 98% of the AUM of the total: AUM as oh
March 31,: 2018./
Significant growth in D^posits with improvement in granularity: Jhe bank's tofaibofrowing increased to
Rs.6,pi9.:crore:asqn-M:areh:31> 2pi9(Rs.7,40l crore as on September 30,2019}'asagainst Rs. 5,240: crore
as oh March 31,: 2018..The bank's borrowing profile majorly;comprised of deposits, loans from:;other
institutions and:Sub-debtsat72%, 23% and 3% respectively as pniMarch 31, 2019{PY:60%>24%and:li%).
As on September.30,:2019,:theshare (as a % of total borrowings) pf deposits, |oans.from other institutions
and sub-debt stood at 82%, 15% and 3% respectively. The total deposits gre^ by 71% during FY19 and
stood at Rs.4,317 crore as on March 31, 2019 {PY: Rs.2,523 crore}. Dufing:HlFY20, deposits grew by 40%
and stood at Rs. 6,063 crore as On September 30, 2019 Due to significant growth in deposits, the CD ratio
of the banklroproved jo :105; times as on March 31, 2019(89%;as;on September 30,2019};as against 125
tiniesas on; March 31,2018.:
6
The bank's term deposits are also granular in nature with'89% Of the total term deposits belqw the ticket
sizeOf Rs.1.0 crore as on March 31,2019 (88% as on September 30,2019) as against56% as on March 31,
201?. The bank's CASA (as % total deposits) has^also improved;to 14%-in March 31, 2019(12% in
September 30, 2O19);from 10% in March 31,2018.
improving asset quality indicators but risks associated with marginal credit profile of borrowers
continues: The; bank improved its collections and recovery mechanisms and the collection efficiency
stood at 90% for FY19 (PY: 96%) and has improvedtq 97% for HlF.V^p though the bank was impacted by
KeralafloOds and; collection efficiency.detlined to 75% during Aqgust 2018: During FY19, the bank written
off its; loans tathe extent of Rs,89,4 crore and the asset quality indicators of the bank has improved with
gross NPAandAiet NPA stood ati^61% and 0.77% respectively as on March 31, 2019 (1.76%and 0.62% as
on September 30, 2019). as against 3.79%and 2.69% as on-March-31, 2018. it is critical for the.bank to.
mai^tain'its asset quality indicators at current ieveis due to credit risks associated with marginal credit
profile of borrowers (share of rnicrqfinahce loans stood at 96% of the AUM as on September 30, 2019)
who are vulnerable to adverse economic Cycles.
Improving profitability metrics: ESAF SFB's profitability improved during FY19, PAT stood at Rs.90 crore
on a total income of RsCl,141 crore in FY19: as again^t;PAT:atRs:27 crore Oh a total income of Rs,699 crore
in FY18, During FY19, the yield on advances (as a% of average interest earning assets) improved to 23^75%
(PY:23;15%) arid the cost of borrowingsfas a % of average interest bearing liabilities) dedinedto 8.97% in
FY19(PY:9.45%) thereby improvement in NIM at 9.75% in FY19 (PY:7.32%), The operating expenses (as a %
of average total assets) have sfightiy improved to 7.71% in F.Yi9 (PY: 7,90%). Credit costs (as'% average
total assets) has increased to 1.99% in F.Y19frOm 0.92% in FY18.: ROTA has improved to 1.53% in FY19 as
agairisf;0,70%;in FY18 supported Joy improvemeht.ih NIMl During HlFY20,:PATstood atRs.91.croreon a
total ihcorhe of Rs.729 crore, During H1FY20, operatinjg expensesfas a % of average tqtal assets) ratio
improved to .7.21% as against 7:71% in FYi9 and credit costs' (as a %of average total, assets) improved to
1.55% in H1FY20;as against 1.99%:inFY19 and aided jn improving the profitability indicators..ROTA for
HlFY20stood at2:36% (no tax expenses were incurred).:
Key Rating Weaknesses, Regiphaiconcentratibn oj'loan portfolio continues^: ESAF SFB's; AUM continues to remain concentrated in
Kerala at 53% as oh September 30,; 2019. The^optwo states constitutes81S^ of the overall ;portfoiio.as on
March 31, 2019; {PY:8i%). However, thebank has takenlnitiatives toreduce the concentration, AUM in
Kerala declined to 52% as On March 31, 2019 from 59% as On Ma^h 31, 2019,'thfough.establishment of
branches and expansion of portfolio across hewer states. The bank has improved its presence to 12 states
7
Policy on: Withdrawal:b.f ratings':'
About the Company;,ESAF: Smaii Finance^Bank Limited (ESAF: SFB). is aiKeraia. based .Small Finance. Bank; (SFB), which hasy
commenced its;b;anking: operations on March lOi 2017. The bank was promoted by Mr, K, Paul Thomas
which is a part of Kerala based ESAF group operating! in Microfinance space from .199.5 .and set up ESAF!|
Microfinance & investments Pvt. Limited (EMFIL) in 2007. EMFibsubsequently gpt SFB license andstarted
its banking operations from March 2017 onwards. ESAF SFB is: currently-focused in retail banking business|
withpresence in microrfinance, Housing finance, business loans, loan against property (LAP), gold loans
and prOviding'finaricing^Solutiohs for,marginal customers who lack access to the formal banking andj|
financing channels while providing a comprehensive banking and digital platfotm for all.
The;bank-received Scheduled Status from RBI on December 27, 2018, As oh December 31, 2019, ESAF
Financial Holdings Private Limited held 65.63% of the shareholding in ESAF SFB: while Mr. Paul Thomas
holding: 7,2994, ESAF Swasraya.iMuti.state :Agrp Co- operative Society Ltd :4,99%, .PNB;,Metljfe India
Insurance 4,99%,;Muthoot FinanceLtd;4:38%, Baja) Allian^ life Insurance Company 4.08%; Pi Ventures.
2,04%, ICICI Lombard: General Insurance Company held 1.46% and individual Investors hold the remaining,•'. '•'; • '';.' "•;;-, ..••;''is
As on September 30, 2019, the bank has 332. branches across.1S3 districts; in; 17 states of India with1
deposits of Rs:6,O63 crore and AUM of Rs.5,559 crore.
financial: ratios- Financial sector• :-Bank -.CARE'S Rating Methodology for Banks- • :
as on March 31, 26l9as against10 states as oh March 31,; 2018 and further to 17 stat^s across 322
branches as on September 30, 2019."'•.'••
Liquidity; Adequate\ :As per structure!-liquidity statement of.the bank as on December 31, 2019, the bank does not have
negative cumulative mismatches up to 1 year time bucket. Also, the liquidity;Coverage Ratio (LCR) stood
: comfortable at 507.02% as on September 30, 2019, In addition, the bank had excess SLR investments of
Rs.166 crore;as on S^ptember 30,:2019 which remained favourable from the liquidity perspective.
Analytical approach: Standalone
Applicable Criteria;^•Cflferiaon assigning QutlpokandCredltwatch to Credit Ratines
1 .... •••' "• .V-. '• •
Disclaimer
CARE's ratings are opinions on the likelihood of timely payment of the obligations under the ratedinstrument and are not recommendations to sanction, renew, disburse or recall the concerned bankfacilities or to buy, sell or hold any security. CARE's ratings do not convey suitability or price for theinvestor. CARE's ratings do not constitute an audit on the rated entity. CARE has based itsratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CAREdoes not, however, guarantee the accuracy, adequacy or completeness of any information and is notresponsible for any errors or omissions or for the results obtained from the useof such information. Mostentities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on theamount and, type of bank facilities/instruments. CARE or Its subsidiaries/associates may also have other
About CARE Ratings:
CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the;lea^ing credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEB1J andalso recognized as an External Credit Assessment Institution (ECAl) by the Reserve Bank of India (RBI). CARE Ratings Isproud of its rightful place in the Indian capital market built around Investor confidence. CARE Ratings provides theentire spectrum of credit rating that helps the corporetes to raise capital for their various requirements and assiststhe Investors to form an informed investment decision based on the credit risk and their own risk-returnexpectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by themethodologies congruent with the international best practices.
I '
A: Audited
Status of non-cooperation with previous CRA: Not Applicable
Any other information: Not Applicable
Rating History for last three years: Please refer Annexure-2
Analyst Contact
Mr P SudhakarContact no. -044-28501000Email: o.sudhakar(S>careratmcs.com
;i" ''":•. "' ^53::
:; 0.77
7,052
:: i.5o
90
1,141
^0:70;
2;69i
;;4>7i4;
:i;25:{
27
650
FV18 (A)^ , FY19 (A |•1 * i
ROTA [%)
Net NPA (%}
Totai Assets
Interest coverage (times)
PAT
Total operating income
Brier Financial^ (Rs. crore)
10-
DCAR.EA1(15-Feb-17}'
1)CAR A-;Stable(O2-Feb-17)2)CAREA-(04-Nov-16)
1JCARE A-;Stable;02-Feb-17)2JCARE A-(04-NOV-16)
Date(s) &Rating(s)
assigned in2016-2017
lJCARE-A-^
liCAREAl(Ol-Dec-17)
1} Withdrawn(01-Dec-17): •;
UCAREA-;Negative(01-Dec-17)".;
Date(s)&Rating{s):
assigned in 2017-
2018
1}CAREA;
1JCARE A^: ,Stabte(25-Ja^l9)
Date(s)&R^tingis)
assigned in2018-2019
..: -
Date(s) &•Rating(s);:assigned in2019-2020
Rating history,
CARE A;'.
Rating
125.00 • • ;:
AmountOutstanding :
(Rs^crore)
LT
ST
IT
•: tT- •
Type:• ':'• Current Ratings
Bdnds-Tier 11 Bonds.
Cprnmefcial Paper
Furtdrbased - LT-CashCredit,
Fund-based-LT-TermLoan
Name of the ;i Instrument/Bank
Facilities. ' :
:4,
:3;-:
2.
1.
Sr,;No,
Annexufe-2: Rating History of last three.years
CAREA1+ .
CAREA;Stable
CAREA; :Stable
CAREA;Stable
CARE A;Stable
Ratingassigned
along withRating
Outlook
: 500.00 1
45.00
40.00
•20.00 .',:
20.00
Size ofthe Issue
(Rs.crore)
-' " '
Ol-Jun-2025
28-Mar-2025
3p-pec-2d24
MaturityDate
7
.; .11.50%.
11.50%
10.50% •:
;COUPO
nRate
-
Ol-Jun-2018
28-Mar-2Q18
30-Dec-2017 :.
Date ofIssuance
:.•
INE818W08032
: INE818W08Q24. :
INE818W08016
TSIN
Certificate of:pepositS:'^ •'.
{Proposed);
Tier II Bonds(PrcSposed)
Tier II Bonds
Tier II Bonds
Tier II Bonds
Name of theinstrument
Annexure-i: Details of Instruments/Facilities :
commercial transactions with the entity, incase of partnership/proprietary concerns, the rating /outlookassigned by C^RE is,.inter-aiia,,based on the.capital deployed by the partners/proprietor and the financial:strength of thefirm a^ present. The ratihg/outlobk mayiindergo change in case of withdrawal of capital orthe unsecured loans bfopght in by the partners/proprietor in addition to thefmancial performance.andother relevant factors. CARE, is pot responsible for any errors and^ states that it has no financial liabilityvvhatsoev^r to the users of CAREfseating.••.•• .
CARE's ratings do: not factor: in any: rating; related trigger clauses as per the: terms of :thefacility/instrument, which may involve acceleration of payments in case of rating downgrades. However, ifany such clauses are introduced and if triggered, the ratings may.see volatility and sharp downgrades.
1
i ,
complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators orothers are welcome to write to care0cbrerptirygs.com for any clarifications. ;:
Date(s)&Rating(s)
assigned in2016-2017
Negative(01-Dec^l^).
Date{s}&:•: Rating{sJ
assigned in 2017-: 2018
1JCARE A1+12-Mar-19)
Sta&te::;',. '25rJan-i9)
Date{s) &Ratin^s)
assigned in2018-2019
..
Date(s) &Rating{s}
assigned in2019-2020
: : Rating history
CAREA1+ :
5table
Rating
soo;oo
AmountOutstanding
(Rs.crore)
typeCurrent Ratings '
^^CertificateOf Deposit
- !'••
Name of theInstrument/Bank
FacilitiesNO.
,Unit No. O-509/C, Spencer Plaxa, 5th Floor,No. 769. Anna Salal. Chennai - 600 002.
Tel:+91-44-28490311 713/76/28501000Tel./Fax:+91-44-2849 7812
CORPORATE OFFICE: 4*f lo6f,;Gqdi*j Coliseum, Somalya Hospital Road,OH Eastern Express Highway, Slon (E), Mumhat-400022.Tel.:+91-22r754 3454.' Fax:+1-22-67543457: : •Email: care^careratltigs.com • www.carerailngs.com
''' ":'''' :' :'"
CARE Ratings Limited
End: As above
: Ravi Shankar RManager
Please refer toouf letter^ated March2,2020 on the above subject.:; .'••.
2.Therationale for the rating is attached as an Anh.exurer I. .
3.; We request you to peruse the annexed documents and offer your comments,if any. We are doing this as a matter of courtesy to our clients and with a
. view to ensure that no factual inaccuracies have inadvertently crept in. Kindlyrevert as early as possible. In any case; if we.do not hear from you by
;. March 4^2020 we will proceed oh the basis that you have no comments to• • offer. ':• '•[:•,.• '•• :^:.:'.'''•
If you have anyfurther clarifications, you a re welcome tb: approach us...
Th^nking you,•••'•-' :;
. : ' •: /Yours faithfully,
Credit rating of debt instruments
Dear Sir,
2, 2020March
CARE/CRO/RR/2019-20/1152
Mr. K Paul ThomasManaging Director & CEOESAF Small Finance Bank LimitedESAF Bhavan, Mannuthy P.O.^
Thrissur, Kerala - 6S0 651
Professional Risk Opinion" :
of the ratings assigned are, available 'atwww.careratings.corn and other. CARE
":.'.:2
^omplete •i'publications '
E^perience of promoter and management team: ESAF 5FB was promoted by Mr. K PaulThomas, who
is the founder .of ESAF group: -,nd holds 7^3% stakerin ESAF SFB as on. p^cember 31; 2019. He has over
• 32 years, of industry-exper.ierice,. of which.more than-22 years are iqThe .microfinance sector. He is
'•:>
Details of instruments/facilities in Annexure-1
De^ailed Rationale ^ Key Rating Drivers 2
Theratings assigned to the deb^ instr^ments and certificate of deposits, of. ESAF Srnaji Finance. Bank
Ltd (ESAF SFS) factors in comfortable capitalisation profile and growth in overall business of the bank
arid improving profitability during FY19(refers to the period April 01 to March 31) and;HlFY20(refers
to the period April 01 to September 30). The ratings continue to factor in experience of the promoter
& management team .in the lending business; the group's significant experience in micrpfinance loans
and comfortable liquidity position. The ratings are, however,; constrained by regionally concentrated
nature of business,:limited diversification in Joan portfolio which: mainly consists of micro finance
loans.. •.
The ratings assigned to the long-term bank facilities is withdrawn with immediate effect, as the bank
has fully repaid the amount under the said facility and there is no amount outstanding as on date.
Rating Sensitivities:Positive factors'_••-'••
;•! increase the-scale bfpperations across; newer geographies;, and improve product mix ofadvances bbok while maintaining good asset quality on a sustained-basis
. Negative Factors..•'-.
•Weakening ofassetquaHtypn; sustained/basis ••Weakenirig of capital;adequacy with CAR'declining beibw, 17% on a sustained basis
Detailed description of the key rating drivers
Withdrawn
Reaffirmed
Reaffirmed
Rating Action
•••
CAREA1+(A One Plus)
CARE A; Stable(Single A; Outlook:
Stable)
Rating1
; -
500.00
125.00
Amount .'•." :(Rs.cfbre)
Long term BankFacilities:'
Certificate of Deposits(Proposed) ;;
Tier'1.1 Bond issue
....... .... . ....Facilities. .
Ratings
Anne^ure-I :.':
Rating Rationale
ESAF Small Finance Bank
supported: by well qualified arid experienced management team which has rich experience in the
banking and financial services/sector. The bank.has.been augmenting its senior management team by
recruiting professionals from the banking and financial sector, As on December 31, 2019, the bank's,
board comprised of eight Directors including fivetridependent directors who have rich experience in
banking and financial services industry.
Comfortable capitalisation feyefs.YThe bank's capitalisation profile is comfortable supported by the
capital infusion of Rs,464 crore through private placement of equity shares during September 2018.
As on.March 31,2019,: thb GAR and Tier I ratio stood at 27.59% and 23;30%Lrespectively (25.69% and
21.99% as on September 30,2019)as against 16.92% and 12.40% as on March 31,2018.
Improvement in advances, however share of MFl loans continues to be high:: ESAF SFB's AUM
improved by 22% during; FY19 arid stood at Rs.5,060 crore as on March 31, 2019 (PY:Rs.4,131 crore)
and during H.1FY20, AUM improved by 10% and stood at Rs.5,559 crore as on September 30, 2019.
Post transition to SFB, ESAF..SFB; has introduced new products.like:LAP.(Loan against Property),
. business IqariSj.corporate loans; gold ^pan, etc. Nevertheless, the; microfinance loan book stood at
97% of the AUM asbh March: 31,: 2019 (96% of the AUM.as on September 30,2019) as against 98% of
the AUM bfthe total AUM asphMarch 31, 2018.:
Significant growth in Deposits with imprqvegient in granularity: the bank's tola] borrowing
increased to. Rs.6,019 crore as :on March 31, 2019(Rs,7,401: crore'as on September 30, 2019 ),as
against Rs. 5,240 crore as on March 31, 2018. The; bank's borrowing profile; majoriy comprised of
deposits, loans from other institutions and sub-debts at 72%, 23%and 3% respectively: ason March
31, 2019{PY:6O%, 24% andll%)..Ason September 30,2019, the share (asa % of total borrowings) of
deposits, loans from other institutions and sub-debt stood at 82%, 15% and 3% respectively. The total
deposits grew by ,71% during FY19 and stood at Rs.4,317 crore as on March 31, 2019 (PY: Rs.2,523
crore). During H1F.Y20, deposits;grew by 40% and stood at Rs, 6,063 crore as on September 30, 2019.
• Due insignificant growth, in.deposits, the CD. ratio of the bank'tmproved to 105times ason March 31,
•.2019(89%. as oh September 3D, 2019) as against 125 times.as on MarchSiyibiS.;
The bank's term deposits are alsograriu|ar in nature with 89%of thetotai: term deposits below the
ticketsizeofRsylObrore.as on March 31, 2019 (88%;as on September 30, 2019)as against 56%; as on
.;1yiar^h 31, ^Oisi^The. bank^s GASA (as %:total deposits): has also.improved to 14% ip Marc^31,
2019(12% in.SeptemberSO,2019).from,10% in March 31,2018;
improving asset quality indicators but risks associated with marginal credit profile of borrowers
continues; The bank ifiiprovedjts collections and recovery fnechariisms arid tfie collection efficiency:
stood at 90% for FY19 (PY: 96%) arid has improvedto 97% for H1FY20 though the bank Was impacted
by Kerala floods and coliection efficiency declined to 75%: during August 2018. During FY19, the bank
written off itsJoansto the extent of Rs.89.4 crore and therasset.quality indicators of the bapkhas
3.
Financial ratios— Financial sector
43
..improved with•grdss::NPA arid Net NPA^tood at 1,61^ and0.77%respectively as on March 31, 2019
.:;^;76%;andi;62%'as:on September 3b,2O1^)as a^ainst 3.79% arid 2:69% as on March 31, 2018. It is
critical for the.bank to maintain its asset quality indicators at current lpvels due to:credit risks
associated with marginal credit profile of borrowers (share of microfinance loans stood at 96% of the
AUM as on September 30, 2019) who-are vulnerable to adverse economic cycles.
Improving profitability metrics: ESAF: SFS's profitability improved during FY19, PAT stood at Rs.9Q
crore on atqtaUncome^f ^^,l,141 crpre in FY19 as against PAT at Rs.27 crpre on a t9ta!.income..of
R$.699 croretn FYis,. During-FY19, the yieid on advances (as a% of average:interest earning assets)
-improved to.23.75%:(f>Y:23.1;S%). and thecost'qf borrowings(as a % of-average interest bearing
liabilities) declined to 8;97% in FY19(PY;9.45%) thereby improvement in N!M at 9,75% in FY19
(PY:7.32%). The operating expenses (as a % of average total assets) have slightly improved to 7.71% in
FV19 (PY: 7.90%).: credit costs (as % average total assets) has increased to 1.99% in FY19 from 0.92% in
FY18. ROTA has improved to 1.53% in -FY19 as -against 0.70%, in FYi8 supported by improvement in
•NiM. During H1FY20 PAT stood at Rs.91 cfore on. a total •income ofRs.729 crore. During H1FY20,
operating expenses (as,a.% of average total assets) ratio improved to 7.21% as against 7.71% in FY19
:and credit costs:(asa%of average.total assets)improved to 1.55%in H1FY20as;against 1.99%in FY19
and aided in: improvingthe profitabilityindicators, ROTA for H1FY20stood at 2,36% (no tax expenses
wereihcurred)..
Regional concentration of loan portfolio continues: ESAF SFB's AUM continues to remain
Concentrated in Kerala at 53% as on September 3.0, 2019. the top two. states constitutes 81% of the
..•overall portfolio as on, March.31, 2019 (PY:81%)^ However,.the bank has taken initiatiyes.to reduce
the concentration of AUM in Keraia to)52% as on March 31, 2019 ffofn 59% as on March 31, 2019;
through establishment of branches and expansion of portfolio across newer states. The bank has
improved its presence to 12istates as on March 3i; 2019 asagainst 10 states as on March 31, 2018
and further to 17 states across 322- branches as onSeptember 30, 2019.
Liquidity: Adequate ..•As per ^tructural liquidity statement-of the bank as on. December 31, 2019, the bank'does not have
negative, cumulative mismatches up to. 1 year time bucket, Also, the: Liquidity Coverage Ratio (LCR)
stood comfortable:'at 507.02%:as,on.SeptetfibeT30, 2019. In addition,:the bank: had excess SLR
investments: of Rs.166 crorejas on September 30, 2019 which remained favorable.from the liquidity
perspective.
Analytical approach: Standalone
Applicable CriteriaCriteria on assigning Outlook ancl,Creditm&tch to Credit PlatingsCARE'sq||cv.op.Default
7,0521/5315,0604,548
8884,317
90. 102
453458
1>141109
1,032
(12m, A)2019
ESAF SFB
4,714732
4,131
3,155
: 333
2,523
2736
304315699102597
(12m, A)2018
ESAF SFB:
3,18^579
2/3271,483.305
409
55
•25;174
:'195484
.39.:
445. -
(12m, A).2017*
ESAF SFB*For the period ended /asat March 31,
Working Results
interest Income
Non Interest IncomeTotal income'
Iriteres^ExpensesOperating E^penses (Incl, Depreciation)Provisions (exoftax)PATFinancial Position
Deposits, .i
Tangible Networth:
On book Advances
fp^^l Ad'yapces (inciuding bff^book)Ihvestrnents: ;Total Assets
KevTtatiosT%J
About the CompanyESAF Small Finance Bank Limited (ESAF SFB) Is aKeraia based Small Finance. Bank (SFB) which has
commenced its banking operations on March 10, 2017. The bank was promoted by Mr. K. Paul
Thomas which: is a,part of Kerala based. ESAF group operating in Microfinance space from.1995:and
set up ESAF Microfinance & investments P-/t. Limited (EMFIL) in 2007. EMFIL subsequently got SFB.
license and started its banking operations from Marph 2017 onwards.. ESAF; SFB is currently focused in
retail banking business with presence in'micro-finance, housing finance, business ioans, loan against
property (LAP), gold loans and. providing financing solutions' for marginal customers who lack access
to the formal banking and financing channels whije providing a comprehensive banking and digital
platform for ail.:
The bank received Scheduled status from RBI on December 27, 20i8. As-on December 31, 2019, ESAF
. Financial Holdings Private Limited held 65,63% of the shareholding in ESAF SFB while Mr. Paul Thomas
holding 7.29%> ESAF Swasraya:Muti state Agrd Co- operative Society Ltd 4.99%, PNB Metiife India •
Insurance 4^99%, Muthoot Finance Ltd 438%, Bajaj Allianz Life insurance Company 4.08%, PI
Ventures 2.04%> iClCI Lombard General Insurance Company held 1.46% and individual investors hold
[ the remaining.: As on:September 30,2019, the bank has 332 branches across 153 districts id 17 states
:df lridia:with:depositsqf Rs.6,063 crqre and AUM of Rs.S,559crore.1••••'""•' •:':"• " "'" ' ^.-'; • • • ••.^
Financial Performance:|.^Rs. crorejI
—^r..••-.-—•••..—•..•• •:——••->t>s
• Batik-- CARE'S' Rating-Methodology for- Banks . . . ]
Critena^oyiShortterminslrurtients-.-
Policy enr.WlfhflraVtfa.1 of ratings
Disclaimer
CARE's ratings are opinions on the likelihood of timely payment of the obligationsunder the: rated instrument and are not recommendations to sanction^ renew,
disburse or recall the concerned bank facilities or to buy, sell or hold any security.CARE's ratings donot conveysuitabilityor price for thejnvestor.. CARE's ratings donot constitute an audit ;po the rated entity. CARE has based its ratings/putlooks oninformatio^ obtained frorri sources believed by it to be accurate and reliable. CAREdoes ;hot,; however, guarantee the accuracy, adequacy or completeness of any
About CARE Ratings:
CARE Ratings commenced operations in April 1993 and over two decades,:it has established itself as one of theleading credit rating agencies In,India, CARE is registered-with the Securities apd Exchange Board of India (SEBi)and abo-recogni^ed as art External Credit Assessment institution' (ECAi) by. the Reserve Bank of India (RBI). CARE
-. Ratings is proud of.its rightful plqce.'irvthe Indian capital hiarket.builtarouridinvestorconfidence: CARE Ratingsprovides the entire spectrum: of .credit rating that, helps the corporate*, to :.raise;capitar for their variousrequirements:and assists the investors to form an informed investment decision based on the credit risk andtheir, own risk-return expectations. Our rating and.gradir.g-service'offerings leverage our domain and analyticalexpertise backed by the methodologies, congruent withtbe.internafional best practices;.
A.^Audited;"The^inancial^ afSFS and MF!is consolidated'
Status of non-cooperation with: previous CRA: Not Applicable
Any other information: Not Applicable
Rating History for last three years: Please refer Annexure-2
Note an complexity levels of the rated Instrument: CARE has classified instruments rated by It on the basis ofcomplexity: This classipiotion is available at www.careratings.com: Investors/market intermediaries/regulators orothersare welcometowrite to [email protected] for any clarifications.
Ahalvst Contact:NirPSudhakar:
: .Contact ho. ^ 044-28501000Email: p.sudhakariScareratings^om
3.96
0.77
1.61-
105.3623.3027,59,6,81
14.781.53
7.71
9.7510.56
8.97
19.53
25.43
2,69
3.79
125.05
12.36
16.87
12.67
8.45
0.70
7.90
7.329.13
9.45
18.58
0.99
0140.53-
362.23
13.3916.27;w^
16;892.22
7.08-
10,12-
8.87
9.54
18:41
NetiWPA to Tangible Networth (%)Net NPA to Net Advances (%):Gross NPA to.Gross Advances (%)
Asset QualityCredit/Deposit ratioTier 1 Capital Adequacy RatioCapital Adequacy RatioOverall Gearing (times)
Solvency
Return on networth
Return on total assets
.. Operational Expenses / Avg Total Assets
Net Interest Margin (N!Mj:• Interest Spread
Interest Expenses/Avg Interest Bearing LiabilitiesInterest Income/Avg Interest Earning Assets^Profitabilit^
information and is not responsible for any errors or omissions or for the resultsobtained from the use of such information. Most entities whose bankfacilities/instruments are rated by CARE have paid a credit rating fee^ based on theamount and type of bank facilities/instruments. CARE or its subsidiaries/associatesmay also have other commercial transactions with the entity. In case ofpartnership/proprietary concerns/the rating /outlook assigned by CARE is, inter-aiia,based on the capital deployed by the partners/proprietor and the financial strengthof the firm at present. The rating/outlook may undergo change in case of withdrawalof capital or the unsecured loansbrpughtin by the^ partners/proprietor in addition tothe financial perfcrmahceiand other relevant factors. CARE is not responsible for anyerrors and states that it has no financial liability whatsoever to the users of CARE'srating. ':'' ;';•
CARE's ratings do not factor in any: rating related trigger clauses as per the terms ofthe facility/instrument, Which may involve.acceleration of payments in case of ratingdowngrades. However, if any such clauses are introduced and if triggered, theratings may see -volatility and sharp downgrades._^____j_^,:___=___
i
1)CAREA1 j(15-Feb-17)
iS
1)CARE A-;.StableO2-Feb-17)2)CARE A-04-NOV-16)
IJCAREA-; .Stable : j(02^Feb-17)2JCAREA-(04-NOV-16)
Date(s) &Rating{s)
assigned in2016-2017
1)CARE A-;Negative:(Ol-Dec-17)
DCAREAi;[Ql-Dec-17)
DWithdrawn(Ol-bec-17)
l)CAREA-;;.:^egative(01-Dec-i7)
Date(s)&Rating{s)
assigned in 2017-
2018
1)CAREA1*(12-Mar-19)
1)CARE A;Stable.(25-Jan-19)
lJCAREA;Stable.-E25-jan-19)
bate(s) aRating(s)
assigned in2018-2019
Date(s}&Ratingfs)
assigned in
2019-2020
CAREA1+
S\RE A;Stable
Rating
•500.00 . :.
125.00'
AmountOutstanding .
{Rs. crore)
Current Ratings j Rating history . '.
ST
LT
LT
;.LT ::
. ... • •
Type
Certificate Of Deposit
Bonds-Tier II Bonds
Commercial Paper:
Fund-based- LT-CashCredit
Fund-based - LT^Term
_oan
••••• Narrieofth^Instrument/Ban k
Facilities
:5:
4-
3:
2.
St.]No,
Annexure-2:; Rating History of last three years
.CAREA1+
CARE A;Stable
CAREA;Stable
CAREA;Stable
CAREA;Stable
Rating: assigned
along withRating
Outlook
500.00
45:00 :
40.00
20.00
20.00
She of the... issue;' ..-.
{Rs, crore) :
-
Ol-Jun-2025
28-Mar-
3025
30-0ec-2024 :
; Wlaturity•':.. .-:Pate-. ..
11.50%
1150%
10.50%:
Coupon^iJ'-i-Rafe/'- .
Ol-Jun-2018
28rMar-2013 ::
30-Dec-:201?
Date of: Issuance
INE818W08032
JNE818WOS024
INE818W08016
ISIN ^
Certificate '••••.of Deposits(Proposed)
Tier ilBonds :{Proposed)v
Tier IIBonds
TierflBonds
Tier IIBonds
Name of•t^e' "...
'instrume^ts':
Arirtexure-l:; Details of Instruments/Facilities
