ESAF Small Finance Bank has announced plans to bolster its capital base through the issuance of Tier II bonds. The bank's Board of Directors has approved raising ₹150 crore through Basel II compliant Tier II subordinated bonds in the form of non-convertible debentures (NCDs) on a private placement basis.

Key Details of the Bond Issuance

Strategic Financial Move

This bond issuance is part of a larger financial strategy approved by ESAF Small Finance Bank's shareholders. The bank has an overall limit of ₹1,000 crore for such issuances, as sanctioned during the Annual General Meeting. This particular issuance of ₹150 crore falls within this broader framework, indicating the bank's measured approach to capital raising.

Management Empowerment

To streamline future capital raising efforts, the Board has authorized its Management Committee to make decisions on subsequent issuances within the approved ₹1,000 crore limit. This authorization extends to determining crucial aspects such as timing, amount, coupon rates, and other related matters for these issuances.

Implications for Investors

For potential investors, these Tier II bonds present an opportunity to invest in a financial instrument offering a fixed coupon rate of 11.30% per annum. The bonds' proposed listing on the National Stock Exchange's Negotiated Trade Reporting Platform under the New Debt Market segment could potentially provide liquidity to investors.

Regulatory Compliance

ESAF Small Finance Bank has ensured compliance with regulatory requirements by disclosing this development under Regulations 30 and 51 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. This transparency aligns with the bank's commitment to keeping its stakeholders informed about significant financial decisions.

As the banking sector continues to evolve, such capital raising initiatives by small finance banks like ESAF demonstrate their efforts to strengthen their financial position and support growth strategies.

ESAF Small Finance Bank has encountered a significant regulatory challenge in its proposed shareholding restructure, as revealed in a recent communication from the Reserve Bank of India (RBI). The central bank has not approved a key element of the bank's arrangement scheme, specifically the acquisition of shares exceeding 5% by Dia Vikas Capital.

RBI's Decision and Its Implications

The RBI's decision, communicated to ESAF Small Finance Bank on October 27, 2025, marks a pivotal moment for the bank's corporate structure. This development has prompted the bank's board to reassess its options and evaluate the consequences of this regulatory stance.

Key Points of the Situation:

1. RBI's Stance: The central bank has not acceded to Dia Vikas Capital's acquisition of shares exceeding 5% of ESAF Small Finance Bank's paid-up share capital.
2. Scheme of Arrangement: This decision impacts a previously disclosed Scheme of Arrangement between the bank's promoter company and its identified shareholders.
3. Board's Response: ESAF's board is currently evaluating the implications and exploring alternative courses of action.

Regulatory Compliance and Future Steps

The bank has emphasized its commitment to ensuring that the promoter shareholding complies with the RBI Bank Ownership Directions 2023. In light of the RBI's decision, the following steps are being considered:

• Reassessment of the implications on the Scheme approved by the promoter company's board on December 10, 2024.
• Exploration of alternative strategies to achieve the intended objectives of the Scheme.
• The Scheme will not be filed with the National Company Law Tribunal pending these deliberations.

Disclosure and Transparency

In adherence to SEBI's Listing Obligations and Disclosure Requirements Regulations, ESAF Small Finance Bank has promptly disclosed this material development to the stock exchanges. The bank has committed to providing further updates as more information becomes available.

This regulatory development underscores the complex landscape of banking sector regulations in India, particularly concerning ownership structures in small finance banks. As ESAF Small Finance Bank navigates these challenges, stakeholders will be keenly watching for further updates and the bank's strategy to align with regulatory requirements while pursuing its corporate objectives.