ESAF Small Finance Bank Q1 FY27 earnings call

ESAF Small Finance Bank's total business reached INR 50,140 crores as of June 30, 2026, marking a healthy year-on-year growth of 23%. Gross advances grew by 27% YoY to INR 23,216 crores, while deposits increased by 19% YoY to INR 26,924 crores. The bank continues to diversify its loan book, with the secured portfolio growing 35% YoY to INR 14,465 crores, now constituting 62% of total gross advances. The Emerging Household (EH) segment, a key focus area, grew 185% YoY and 14% QoQ, contributing 32% to total gross advances.

The bank demonstrated significant improvement in asset quality, with Gross NPA declining to 5.4% in Q1 FY27 from 7.5% in Q1 FY26, and Net NPA reducing to 0.8% from 3.8%. Slippages sharply decreased to INR 75 crores from INR 468 crores on a YoY basis. This led to a substantial increase in Profit After Tax (PAT) to INR 80 crores in Q1 FY27, up from INR 24 crores in the previous quarter. Annualized Return on Assets (ROA) reached 1% and Return on Equity (ROE) stood at 17.5%, indicating a return to normalized profitability levels.

Net Interest Income (NII) improved significantly to INR 584 crores in Q1 FY27, compared to INR 378 crores in Q1 FY26, driven by robust loan book growth and a strategic product mix. The Net Interest Margin (NIM) for the quarter was 7.9%. Management expects NIM to be maintained above 7.5% going forward^⏳, despite potential moderate pressure from subdued deposit growth in the banking system. Pre-provisioning operating profit (PPOP) also saw a strong 179% YoY growth, reaching INR 349 crores.

The bank's liability strategy remains focused on granular retail deposits, which constitute 91% of total deposits and grew 13% YoY to INR 24,487 crores. CASA deposits grew 12% YoY to INR 6,297 crores, maintaining a CASA ratio of 23.4%. The Liquidity Coverage Ratio (LCR) stood at a comfortable 133.31% as of June 30, 2026, reflecting a strong liquidity position. The bank aims to deepen customer relationships and improve the quality and stability of its funding base.

Operational efficiency improved notably, with the Cost-to-Income ratio decreasing to 58% in Q1 FY27 from 78% in Q1 last year. Operating expenses grew by only 1% QoQ and 8% YoY. The bank is progressing with its ESAF 2.0 StratoNeXt digital and IT transformation program, which is expected to be fully implemented by the end of this calendar year. This initiative aims to enhance scalability, automation, operational efficiency, and customer experience, supporting the bank's growth for the coming decade.

The MARG portfolio (Micro, Agri, Retail, Gold) continues to be a primary growth engine, growing 42% YoY to INR 12,909 crores and comprising 56% of the total portfolio. The bank is also renewing its focus on the Emerging Household (EH) segment, targeting customers transitioning from financial inclusion to mainstream retail banking with annual incomes of INR 3-15 lakhs and ticket sizes under INR 10 lakhs. This segment, which grew 185% YoY, is expected to become one of the largest customer franchises.