India: ESAF Microfin Plans to Raise R100 Crore via Rights Issue

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Feb 2016
India, February, 27 2016 - Chairman and managing director K Paul Thomas told FE that the capital will be raised in the next two weeks. All existing investors, including SIDBI Venture Capital, the wholly-owned subsidiary of Small Industries Development Bank of India (SIDBI), are expected to subscribe to the rights issue.

Kerala-based ESAF Microfinance, one of the 10 entities that have been granted in-principle approval to set up small finance banks (SFBs), plans to raise Rs 100 crore through rights issue.

Chairman and managing director K Paul Thomas told FE that the capital will be raised in the next two weeks. All existing investors, including SIDBI Venture Capital, the wholly-owned subsidiary of Small Industries Development Bank of India (SIDBI), are expected to subscribe to the rights issue.

“All our existing investors have informed us that they will subscribe to the rights issue, which will be completed by mid-March. The money raised will be used for expansion of our loan portfolio,” he said, adding that the bank’s IT infrastructure will be in place by the end of March and it is on track to start operations by August.

Though the Reserve Bank of India (RBI) has set a deadline of April 2017, for SFB licencees to start operations, most are in a rush to start in CY16 itself. Last week, another SFB licencee, Bengaluru-based Ujjivan Financial Services announced that it had raised about R 300 crore in a pre-IPO placement to investors like HDFC Life, Sundaram Mutual Fund and Shriram Life.

Similarly, the Navi Mumbai-based SFB licencee – Suryoday Micro Finance – is in advanced stages of talks for getting new domestic investors on board since foreign investors currently hold a 68% stake in the company.

According to RBI guidelines, SFBs need to adhere to the FDI policy for private sector banks as far as foreign shareholding is concerned.

In September 2015, RBI, as part of its objectives to further financial inclusion, had granted in-principle approvals to 10 entities (from among 72 applicants) for setting up SFBs. While the central bank hasn’t put any restriction on the area of their operation, it has mandated that at least 50% of an SFB’s portfolio should constitute loans and advances up to Rs 25 lakh and they they shall “primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.”



 

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