ESAF Small Finance Bank Limited — Q4 FY26 earnings call

Call held 4 May 2026

Management summary

ESAF Small Finance Bank delivered a strong Q4 FY26, marked by robust growth in advances and deposits, alongside significant improvements in asset quality with declining GNPA and NNPA. The strategic shift towards a secured lending portfolio is yielding positive results, with the secured loan mix improving to 61%. Profitability saw a sequential uptick, and management provided optimistic guidance for future growth, asset quality, and return ratios, despite acknowledging a temporary backlog in provisioning.

Highlights

  • Total business grew 15% YoY to INR 48,276 crore.

  • Gross advances increased 19% YoY to INR 22,426 crore.

  • Deposits increased 11% YoY to INR 25,850 crore.

  • GNPA declined to 5.4% from 6.9% YoY, and NNPA declined to 1.8% from 3.0% YoY.

  • PAT for Q4 FY26 stood at INR 24 crore, a significant sequential improvement from INR 7 crore in Q3 FY26.

  • Secured loan mix improved to 61% from 53% last year, with 82% of total disbursements towards secured assets.

Concerns

  • A backlog on provisioning for credit cost will continue in FY27, impacting profitability before stabilizing in FY28.

Key financials

  1. Gross Advances ₹22,426 Cr +19%YoY
  2. Deposits ₹25,850 Cr +11%YoY
  3. NII ₹518 Cr +20%QoQ
  4. PAT ₹24 Cr +243%QoQ
  5. GNPA 5.4% -22%YoY
  6. NIM 7.3% +11%QoQ

What they filed

Q1 FY27: revenue up 32.6%, net profit up 198.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue995 948 892 828 820 −18%894 −6%995 +12%1,098 +33%
Net profit-190 -211 -183 -81 -116 +39%7 +103%24 +113%80 +199%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Liquidity Liquidity disclosed Liquidity Coverage Ratio (LCR) stood at 143.35% as of March 31, 2026, indicating a comfortable liquidity position. Additionally, 88% of bulk deposits carry a non-prepayment clause, providing stability to the funding base.
    Our Liquidity Coverage Ratio stood at 143.35% as of 31st March 2026, indicating a comfortable liquidity position. Further, 88% of bulk deposits carry a non-prepayment clause, providing stability to our funding base.

Guidance & targets

Secured Assets Mix

  • Share of secured assets in total advances Secured Assets Mix · March 2027 · High confidence 70%
    We remain on track to achieve our stated target of 70% secured assets by March 2027.

    — George K. John

Credit Cost

  • Steady-state credit cost Credit Cost · From FY28 · High confidence 2%
    So steady-state basis a 2% credit cost is an expected thing going forward. This year also there will be some backlog on provisioning, so from FY 28 you can expect.

    — Gireesh C. P.

ROA

  • Return on Assets (ROA) ROA · By FY28 · High confidence 2%
    We are planning to have an ROA of 2%... And that too, I mean, we will target to achieve by FY 28? Yes.

    — Gireesh C. P.

Loan Book Growth

  • Loan book growth Loan Book Growth · Steady-state basis · Medium confidence 20% to 25%
    On a steady-state basis, 20% to 25% is the growth which we are looking.

    — Gireesh C. P.

Cost-to-Income Ratio

  • Cost-to-income ratio Cost-to-Income Ratio · Going forward · Medium confidence 55% (+/- 2%)
    Cost-to-income ratio somewhere around 55%, plus or minus 2% is the guidance which we would like to give.

    — Gireesh C. P.

NIM

  • Net Interest Margin (NIM) NIM · Going forward · Medium confidence 7% (+/- 0.5%)
    Yes, NII, has almost reached to a steady-state basis. So somewhere around 7%, plus or minus half percentage will be the NIM going forward.

    — Gireesh C. P.

Unsecured Book

  • Unsecured book share Unsecured Book · Not explicitly stated, implied as part of portfolio transition · Medium confidence 30%
    A small correction on the unsecured book, we have given a gliding path up to 30%.

    — Gireesh C. P.

What to watch in Q1 FY27

ROA Traction

Next couple of quarters
Current 0.1% (Q4 FY26, non-annualized)
Target Visible traction towards 2% ROA

Why it matters

Management expects to see traction in ROA, a key profitability metric, in the near term, indicating progress towards the FY28 target.

We will start seeing the traction in another couple of quarters and you will see that trend continuing.

Risks & concerns

  • External Factors and Geopolitical Developments

    medium

    External factors, including geopolitical developments, remain a watchpoint, though the sector is believed to be on a more stable trajectory.

    Management acknowledged

Q&A highlights

4 direct
Normalized Credit Cost and Timeline Direct
So steady-state basis a 2% credit cost is an expected thing going forward. This year also there will be some backlog on provisioning, so from FY 28 you can expect.

Clarifies the long-term credit cost expectation and when it will stabilize, which is crucial for profitability projections.

Asked by Deepak Poddar

Growth and ROA Outlook Partial
It is a futuristic statement and I'm unable to give you at this moment. But one thing which I can tell is that the growth is back and the asset quality problems are almost over and going forward we will be on a steady kind of growth. That is what is expected. We are planning to have an ROA of 2%

Provides management's confidence in returning to growth and achieving a specific ROA target, indicating a positive future outlook.

Asked by Deepak Poddar

Loan Book Growth Trajectory Direct
On a steady-state basis, 20% to 25% is the growth which we are looking.

Gives a clear quantitative target for future loan book expansion, which is a primary driver for bank revenue.

Asked by Amit Mehendale

Cost-to-Income Ratio Guidance Direct
Cost-to-income ratio somewhere around 55%, plus or minus 2% is the guidance which we would like to give.

Provides insight into operational efficiency targets and potential for cost management.

Asked by Amit Mehendale

NII Growth vs. Loan Book Growth Direct
Yes, NII, has almost reached to a steady-state basis. So somewhere around 7%, plus or minus half percentage will be the NIM going forward.

Explains the expected trajectory of Net Interest Income in relation to loan book growth, linking it to NIM stability.

Asked by Amit Mehendale

2 min read 5 chapters

Detailed narrative

Strategic Focus and Portfolio Transition

ESAF Small Finance Bank is strategically focused on building a granular, diversified, and increasingly secured lending portfolio to improve asset quality, earnings stability, and long-term scalability. The MARG strategy (MSME, Agriculture, Retail, Gold loans) is central to this transition, enabling risk diversification and reduced dependence on unsecured segments. The bank's secured loan mix improved to 61% in Q4 FY26 from 53% last year, with 82% of total disbursements towards secured assets, and a target of 70% secured assets by March 2027.

Q4 FY26 Financial Performance Highlights

For Q4 FY26, the bank reported a total business of INR 48,276 crore, a 15% YoY increase. Gross advances grew 19% YoY to INR 22,426 crore, while deposits increased 11% YoY to INR 25,850 crore. Net Interest Income (NII) for the quarter was INR 518 crore, a 20% sequential increase from INR 432 crore in Q3 FY26, and Net Interest Margin (NIM) improved to 7.3% from 6.6% sequentially. Profit after tax (PAT) for Q4 FY26 stood at INR 24 crore, a significant improvement from INR 7 crore in Q3 FY26, with ROA at 0.1% and ROE at 1.3% (non-annualized).

Asset Quality Improvement

The bank demonstrated significant improvement in asset quality, with Gross Non-Performing Assets (GNPA) declining to 5.4% from 6.9% YoY, and Net Non-Performing Assets (NNPA) falling to 1.8% from 3.0% YoY. Slippages reduced significantly to INR 106 crore in Q4 FY26, compared to INR 427 crore in Q4 last year. The gross slippage ratio for FY26 improved to 6.5% from 10.5% in FY25, and credit cost for FY26 was 4.7%, down from 6.7% in FY25, reflecting underlying portfolio stability.

Technology and Digital Transformation

ESAF 2.0 – StratoNeXt, the bank's digital transformation program, is progressing steadily and is expected to be completed before Q3 FY27. This initiative aims to lay a strong and agile foundation for core technology infrastructure, enhancing operational efficiency, improving data governance, and enriching customer experience. The bank's efforts in digital transformation have been recognized with multiple industry awards, including the Digital Transformation Excellence Award.

Growth Outlook and Future Targets

Management expressed confidence in a return to steady growth, targeting a 20-25% loan book growth on a steady-state basis. They anticipate a steady-state credit cost of 2% from FY28 and aim for a Return on Assets (ROA) of 2% by FY28. The cost-to-income ratio is guided to be around 55% (+/- 2%), and NIM is expected to stabilize around 7% (+/- 0.5%) going forward. The bank also aims to maintain its unsecured book share at a maximum of 30%.

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