K Paul Thomas, MD & CEO, ESAF Small Finance Bank

The short-term impact of COVID-19 will be severe in all segments: K Paul Thomas, CEO, ESAF


ESAF Small Finance Bank was established in March 2017 and within two years of its operations it became a planned bank in December 2018. In March 2020, the bank also received Sebi approval to raise capital through an initial public offering. Currently, the bank has 436 banking businesses, including 198 ultra-small branches and 208 ATMs. Rajesh Ravi talks to K Paul Thomas, ESAF’s CEO and CEO, about the concerns and ensuing problems posed by the lockdown. Fragments:

What is ESAF’s experience with branch banking during the lockdown period? Have you seen a significant change in net banking or ATM transactions?
Most of our locations are open and functioning, but the number of visitors is less than 10 people per day. We have noticed that customers only do the absolute minimum banking. Our ATM trades for the period are 3.12 lakh with a payout of Rs 73 crores which is also on the downside. But we have seen that the gold loan product is widely used for emergency. On a single day we saw payout of Rs 59 lakhs in the gold lending section.

Do you expect an increase in credit demand after the blocking period?
We expect credit to decline in the SME segment after the 40-day closing period. We estimate that the micro and MSME sector needs funds to reboot their sites and also needs working capital. Our strength and focus is the micro segment.

Many people and institutions are likely to suffer from a drop in income during the close. Do you expect delinquencies and NPAs to increase significantly?
ESAF has more than 96% of its exposure in the microsegment, with an average loan ticket size of Rs 33,000. We have given all of our clients a three-month moratorium until May and are in constant contact with them through our banking correspondents. The clients are confident that they can repay the loan within a certain time after the moratorium. We have experience in dealing with such calamities as the 2018 flood and see no problem whatsoever. However, we estimate a bit more delay in the MSME segment as they take longer to return to normal. We don’t have a lot of exposure in the business sector, because our focus is mainly on retail.

Are you thinking of a new product to help them get through the current situation?
We have a new product for small traders, a micro-business loan and expand this through the association of entrepreneurs. For our existing clients, we provide a ‘COVID care loan’ of Rs 30,000 with a four-month moratorium. This is a pre-approved loan and during the floods we had paid Rs 89 crores to our clients who were in a similar situation.

NRA transfer is an important source of funding for most Kerala-based banks. Do you see a shift in remittance given the pandemic and other problems in the Middle East?
We expect a malfunction in the short term, but we do not see many problems in the long term. Our expats are very important to the economy of the Middle East and I think we will overcome the problems.

What is your view of the economy after COVID-19?
My observation is that the short-term impact will be severe in all segments. The recovery takes at least six months. The small segment is likely to recover faster. I think India has more opportunities and will recover in 18-24 months. I expect the car and telecom sector to do better after COVID-19. Kerala can again do considerably well because of the better handling of the situation.

ESAF recently received Sebi approval for an IPO. Have you made a decision about the IPO?
We have not yet made a decision on the IPO. We got approval in March and we have a year to go to market. We can take a little more time on a public matter.

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