ESAF Small Finance Bank Q2 Profit Reaches ₹160 Crore

ESAF Small Finance Bank Limited reported a standalone net profit of ₹160.17 crore in Q2 FY27, reversing a ₹115.81 crore loss a year earlier, as interest earned increased 43.3% year-on-year to ₹1,174.71 crore and credit costs normalised.

How did ESAF Small Finance Bank perform in Q2 FY27?

ESAF Small Finance Bank reported total income of ₹1,388.04 crore for the quarter ended September 30, 2026, up 43.84% from ₹964.98 crore in Q2 FY26. Interest earned rose 7.01% sequentially and 43.29% year-on-year to ₹1,174.71 crore. Other income was ₹213.33 crore during the quarter.

The bank's net profit more than doubled from ₹80.08 crore in Q1 FY27 to ₹160.17 crore in Q2 FY27. It marked a clear improvement from the loss recorded in the corresponding quarter last year. Basic earnings per share stood at ₹3.10, compared with a loss per share of ₹2.25 in Q2 FY26 and earnings per share of ₹1.55 in the preceding quarter.

What drove ESAF Small Finance Bank's return to profit?

The key reason for ESAF Small Finance Bank's return to profit was a reduction in provisions and contingencies, which fell to ₹147.89 crore from ₹248.67 crore a year earlier. Management said the quarter saw normalisation in slippages, particularly in the unsecured book, supporting an improvement in asset quality and profitability.

Pre-provision operating profit, or PPoP, was ₹362.39 crore, up 288.62% year-on-year and 3.84% quarter-on-quarter. The operating profit margin was 30.85%, compared with 31.79% in Q1 FY27 and 11.37% a year earlier. Operating expenses increased 2% sequentially, with other operating expenses rising 4%, while employee costs remained flat, according to management.

How did deposits, advances and liquidity change?

ESAF Small Finance Bank's deposits grew 24% year-on-year to ₹28,466 crore as of September 30, 2026, from ₹22,894 crore a year earlier. Retail deposits accounted for 90% of total deposits, while the current account savings account, or CASA, ratio was 23.3%. The credit-to-deposit ratio was 82%.

Gross advances increased 25% to ₹23,934 crore from ₹19,137 crore. The secured portfolio grew 32% year-on-year to ₹15,377 crore, while the unsecured portfolio rose 15% to ₹8,557 crore. Total business was ₹52,399 crore, up from ₹42,031 crore a year earlier. Including IUPC transactions completed during the quarter, total business was ₹53,449 crore. The liquidity coverage ratio stood at 141.48%.

What do the asset-quality metrics indicate?

ESAF Small Finance Bank reported a gross non-performing asset ratio of 2.84%, while the net NPA ratio was 0.3%, according to the results update. The bank said its annualised gross slippage ratio reduced to 1.6% in Q2 FY27. These measures reflect the lower fresh stress reported during the quarter.

Management disclosed technical write-offs of ₹626 crore, describing them as probably the final significant load from legacy NPAs. Annualised credit cost declined to 2.6%, and the bank expects it to be around 2% for the full year. Return on assets and return on equity were 1.5% and 26.5%, respectively, on an annualised basis.

What are management's financial outlook comments?

ESAF Small Finance Bank said its net interest income increased 73% year-on-year to ₹643 crore, while net interest margin stood at 8.2% in Q2 FY27. Yield on advances remained in a comfortable range and the cost of funds was largely stable during the quarter, management said.

The bank expects funding costs to rise marginally in Q3 FY27 but said it has sufficient cushion to absorb the current NIM level. It also expects PPoP improvement to remain stable in the second half of the financial year. Management cautioned that further increases in policy rates could raise interest expenses and affect margins.

Conclusion

ESAF Small Finance Bank's Q2 FY27 results show a return to standalone profitability, supported by 43.3% growth in interest earned, lower provisions and improved slippages. The expansion in deposits and advances, particularly the 32% growth in secured advances, also indicates continued balance-sheet growth during the quarter.

Investors will watch whether credit cost moves towards management's full-year estimate of around 2%, whether slippage remains contained, and how a potential rise in funding costs affects the 8.2% net interest margin in the second half of FY27.