The next phase of India's growth will come from the rural and semi-urban areas and ESAF Small Finance Bank is preparing to capitalise on it, said Kadambelil Paul Thomas, the company's Managing Director and CEO.

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"We have a very good rural network and we have got the expertise also, we have built over a period of 30 years. So if the GDP contribution is 47%, but the credit inflow is only 8%, there is huge potential in these markets, especially the microentrepreneurs the farmers and the rural overall segment," Thomas told CNBC-TV18 in an exclusive chat.

Below are the edited excerpts of the interview.

Q: There was a very strong subscription to your IPO especially on the institutional side, can you take us through some of the larger institutional investors that you have on board?

A: So, anchor investors, we have a Kotak Life Insurance company, ET Life Insurance company, Family Care, and some foreign investors also came on board. We have received a very good response from all the banking treasuries who have participated in the issue. So that's what I have seen.

Q: Talk about the growth for you ahead now, as a listed company? You predominantly cater to rural India, about 60% of your deposits, your collection centers etc. are in rural India. We know the opportunity is huge; it's hugely underpenetrated, I was reading somewhere that the rural centres accounted for 47% of GDP, yet they received only 8% of the overall banking credit. Keeping that in mind, what could growth rates for you be? The NII for you has gone up by 40% from FY21 to FY23 can you continue with that run rate?

A: On a six-year compound annual growth rate (CAGR), we have grown at 39%. So, you are right in the assumptions on the rural potential. So, we have a very good rural network and we have the expertise also, we have built over a period of 30 years. The next phase of India's growth, I believe will come from the rural and semi-urban areas. So if the GDP contribution as you said is 47%, but the credit inflow is only 8%, there is huge potential in these markets, especially the microentrepreneurs the farmers and the rural overall segment. Even in affordable homes, we have already built these verticals, affordable homes, mobility, agribusiness, gold loan so all these new verticals we have built over last three, three years. So all are going to give us results. So we are very confident that this growth will continue.

Q: Looking at the data that I have before me, it appears that almost 74-75% of your business is coming from promoters, of course through banking correspondence, that's one and in the past, the RBI has sought clarifications on some investments, the company has been making and promoter group entities. I mean, apparently, there were some share purchases, etc. Can you shed some more light on this and how do you plan to de-risk and diversify away from promoters?

A: We have adopted a business correspondent model to reach out to the last mile, especially the microloan sourcing and servicing. But over a period of time, we have onboarded around another 25 institutional business correspondents. So this started in 2019 so during the COVID period, they couldn't do much. but all of them now started sourcing business. So this concept of the promoter cooperative, handling the VC will definitely come down over a period of time, next two to three years this will come down that's one part. It was only a clarification, in 2018 bank issued shares through a private placement and the cooperative also participated in it. So the RBI has just asked a clarification on that because the cooperative was also part of the holding company.

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Q: Since we are talking about the listing, can you tell us why there was so much of a delay in bringing the IPO? I do believe that there were repeated reminders by the Reserve Bank in order to you know, come to the market. So, why this kind of delay?

A: As per the RBI guidelines, we were supposed to complete the listing in 2021 July. We started our process in 2019 and we got the SEBI approval for DRHP in March 2020. So, we all know that from March 24 onwards the COVID, lockdown started, and the customer segments were really impacted. So, even though we have tried again, we couldn't complete the process. But RBI gave us extended time till November 30. So, we have completed the listing process today.

Q: So can you talk about your expansion plans, you have about 700 banking outlets, which includes 59 business correspondence. Can you tell us from 700 when you hit 1,000? How many more banking outlets will you say launching next year and the year after?

A: So, this year, we got approval from our board to open 50 banking outlets. So, for our reach and point of sale, we have customer service centers operated by our business correspondence which I mentioned earlier. So, around 756 customer service centres are being operated by business correspondent partners. So this also generates a lot of business. We have already diversified into 21 states and 2 Union Territories and we have been in the market for the last 20 years in Maharashtra, Madhya Pradesh, Chhattisgarh, Jharkhand, and Bihar, all these places we have got very good percent and in these geographies and also the new geographies where we started two years before Rajasthan, Gujarat, Uttar Pradesh, Orissa, and northeast all these geographies we will be opening more branches and also the VCs will open more customer service centres also.

Q: Quickly on the headline numbers, I can see that your margins are actually quite higher compared to your peers and your NIMs are closed by about 13.5%. Can you give us some sense of your cost of funds and how you are driving this number? And also what's the outlook can you sustain this?

A: Before COVID we have been maintaining NIM of around 9.5%. So, during the COVID period it had a hit on it our cost of funds today is around 6.25%, but due to the deposit rate hikes, we are expecting some increase in that. Even we are expecting that we will be able to maintain a name of 9.5 to 10% going forward also that is our expectation

Q: From 13.5% right now 9 to 10% is sustainable you're saying?

A: No, no, I'm saying on a long-term basis.

Q: So, could you define that what do you mean by long term?

A: 13% is for the first quarter and a lot of repricing has happened on the deposit rates. Product diversification is also happening. So from micro it is a high-yielding product, microloans. So, we are now expanding in gold loans and have affordable home loans, and agricultural loans, as these products increase there will be, say a little bit the margins will come down, that's what I say.

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(Edited by : Shweta Mungre)