Kerala-based ESAF Small Finance Bank will rely on corporates and high-networth individuals to build its liability franchise while it disburses loans of up to R10 lakh to small traders and low-income groups, managing director and CEO K Paul Thomas told FE. Edited excerpts:
What are your targets for FY18?
In FY18, we are targeting a total business of R5,000 crore, for both loans and deposits. The target for retail deposits is R1,000 crore.
Tell us a little about the products you are offering, the rates of interest and ticket sizes you are looking at.
We have deposit rates ranging between 5.75% for a 30-day tenure and 9% for tenures of more than 365 days to two years. For savings deposits, up to R1 lakh, it is 6%. Over R1 lakh and up to R10 lakh, it is 6.5% and above R10 lakh, it’s 7%. Our MCLR is 15.75%. Currently, we are doing only microfinance loans. Other products will be launched only in April. There will be housing loans and business loans. It will be a little above our MCLR. Micro-banking will continue as a separate focused business vertical. The other loan products we are looking at are home improvement loan and the house construction loan, up to R10 lakh. The business loans will also be in the R2-10 lakh category. These are the products we will initially be focusing on — housing and business loans. As we build our liability franchise, we will look probably at the agri sector, educational loans and things like that.
What are your plans for fundraising?
Apart from retail deposits, we are targeting bulk deposits. We are already in talks with mutual funds and fund managers and also to some of the corporates. We are planning to raise around R200 crore in tier-II capital immediately. This will meet our capital requirement for tier-II. After September, we will be looking to raise tier-I.
Do you plan an IPO anytime soon?
The initial public offering will be after three years, in 2020.
What is the profile of the customers you are going to target?
For the liabilities, we are targeting corporates, high-networth individuals and NRIs. As such, small traders and the lower middle class are also target customers for us.
Which geographies are you focused on currently?
Currently we work in 11 states. Besides Kerala, in Tamil Nadu and Karnataka we are there. In central India, we are present in Madhya Pradesh and Maharashtra. In Maharashtra, we are currently in Vidarbha, but we will be expanding to Mumbai and other parts of Maharashtra as well. In the east, we are already present in two districts in Bihar and one in West Bengal. We’ll be expanding in Bihar also.
What are your plans for branch expansion?
Currently, we have 285 microfinance branches that we are converting to small finance bank branches. We are opening 85 new retail branches in the first year, of which 15 are already functioning.
What is the share of rural unbanked branches and where do you see it by the end of the year?
We currently meet the requirement of having 25% of branches in rural unbanked locations. If you consider the other rural areas, it turns out to almost 50% overall. The share of rural unbanked may even go up to 30% because we are exploring some unbanked locations in places like Jharkhand, which we are targeting. How are you incorporating digital systems in your operational setup? We have partnered with FIS Global and we have already launched our digital initiatives. We started with the ATM network. We have also launched internet banking and mobile banking. We are coming up with a UPI platform. For account opening, we have developed a separate module, where all our field agents will be using tablets.
How have collections recovered for you after demonetisation?
In most places it has normalised, except a few branches in Maharashtra and two in Madhya Pradesh. Before demonetisation, we used to maintain collections at 99-99.5%. It is at around 92% now. It had gone lower than that, but gradually it has started improving.