ESAF Bank Charts Course for Stable Growth and Resilient Future

Ashwin Thakker

— 2 min read

Key Facts on Outlook:

  • Sales/Advances: Moderate business growth targeted for FY '26; underlying total business growth (adjusted for write-offs) at 8.74% in Q1 FY '26.
  • Portfolio Mix: Strategic shift towards secured lending; target 70% secured assets by March 2027 (currently 54.79%).
  • Margins (NIM): Expected to improve in coming quarters as slippages reduce and fresh disbursements occur at moderated rates.
  • Asset Quality: Focus on reducing Gross and Net NPAs to sustainable levels; Provision Coverage Ratio (PCR) at 73.2% (target 70%).
  • Profitability: Expect to achieve positive Return on Assets (ROA) by the end of FY '26.

ESAF Small Finance Bank is navigating the current financial landscape with a clear strategic vision, aiming for a year of consolidation and positive Return on Assets by the end of FY ‘26. The bank is prioritizing stability, strengthening its loan book, and enhancing operational efficiency to build a robust foundation for future expansion and sustainable growth.

Strategic Portfolio Shift and Diversification

ESAF Small Finance Bank is deliberately shifting its lending strategy towards more stable secured assets, moving away from unsecured microfinance. The micro loan book declined to INR 9,095 crores in Q1 FY '26, while secured assets now form 54.79% of the total loan book, up sharply from 32.69% a year ago. The bank aims to increase this to 70% by March 2027, including gold, mortgage, MSME, and agriculture loans. Gold loans performed exceptionally, growing 16% quarter-on-quarter and more than doubling year-on-year, driven by rural and semi-urban demand. This strategic pivot de-risks the portfolio and supports resilient, high-quality growth.

“Our continued shift towards secured lending, coupled with disciplined execution in retail, MSME and gold loan segments position us well for consistent and sustainable performance.”

Asset Quality Improvement and Margin Outlook

ESAF Bank is actively working to enhance asset quality, targeting a reduction in Gross NPA (7.5%) and Net NPA (3.8%) to sustainable levels. The Provision Coverage Ratio has improved to 73.2%, reinforcing balance sheet strength. While Net Interest Margin (NIM) moderated to 6% in Q1 FY '26, largely due to the shift to secured assets and RBI rate cuts, management foresees improvement. Full impact of liability rate cuts will take 1-1.5 years, complemented by refined product pricing. Proactive collection and enhanced risk management across all lending segments are in place to bolster this positive outlook.

“We expect to achieve positive ROA by the end of FY ‘26 as operating performance strengthens and provisions normalized.”

ESAF Small Finance Bank's Q1 FY '26 performance underscores its commitment to a balanced growth strategy. By de-risking its portfolio, focusing on secured lending, and rigorously managing asset quality, the bank is positioning itself for a period of consolidation and improved profitability. This disciplined approach aims to deliver sustainable value and strengthen its financial foundation for long-term success.

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