Mobilising low-cost current account, savings account (CASA) deposits continues to be the biggest challenge for small lenders, ESAF Small Finance Bank (ESAF SFB) managing director and CEO K Paul Thomas tells FE.
“While big banks may not face any challenge in accreting current account and savings account (CASA) deposits, it has become a challenge for new, small-sized banks. Large corporates, who usually park money with large banks, nowadays do not keep funds in current account and just use the ‘sweep in’ and ‘sweep out’ facility, which essentially comes under the short-term FD category,” he said.
Small and new banks like ESAF will take time to build the current account base, he said. However, savings account deposits can be grown by offering higher rates of interest. ESAF SFB’s overall deposits stood at Rs 18,860 crore as of Q3FY24, up 41% year-on-year. The CASA ratio stood at 19%. The SFB is targeting a 16%-18% growth in deposits in Q4FY24, Thomas said.
To grow the deposit base, the lender is also targeting its large pool of micro loan customers and has formed a dedicated team, the MD said. There might be a marginal slowdown in the credit growth, but the outlook is positive as the overall systemic liquidity is improving, Thomas said.
ESAF SFB’s overall advances stood at Rs 18,149 crore as on December 31, 2023, up 36% YoY, and will grow 25%-30% going ahead, Thomas said. The mix of micro loans in the overall portfolio will moderate by nearly 5% each year, from 72% as on December-end.
The SFB in November 2023 raised Rs 463 crore via an initial public offering, but had to trim the issue size by 20% due to volatile market conditions. As of Q3FY24, the capital adequacy ratio stood at 21% and tier-II capital accounted for 2% of the overall capital base. The SFB has around Rs 135 crore of tier-II bonds maturing in next 18 months. The lender recently raised Rs 145 crore via tier-II bonds and is in the process of raising another Rs 145 crore via the same route in the current quarter.
The bank has recently opened 31 branches, with the north and south regions dominating the expansion drive. The SFB has also set up a zonal office in Delhi.
“We are focusing on states like Uttar Pradesh, Rajasthan, Odisha and the northeast region for growth. Since ESAF is a south-based legacy entity, it will take time to grow presence in other states. We are already present across 23 states,” Thomas said.