ESAF SFB Q2 FY26 Results: Loss widens as income slips

Key takeaway for investors

ESAF Small Finance Bank (ESAF SFB) reported a wider standalone loss for the quarter ended 30 September 2025 (Q2 FY26), even as its capital adequacy remained above 22%. Total income fell sequentially and year-on-year, while provisions stayed elevated. Asset quality indicators weakened, with both gross and net NPA ratios rising versus the previous quarter and the year-ago quarter.

Auditor’s limited review: clean report

The joint statutory auditors, Kirtane & Pandit LLP and Sundaram & Srinivasan, issued an unmodified limited review report on the bank’s unaudited standalone results for the quarter and half year ended 30 September 2025. The review did not flag qualifications or concerns. The auditors also noted compliance with applicable accounting standards, RBI guidelines, and SEBI listing regulations. Comparative figures for earlier periods were reviewed or audited by other auditors who also issued unmodified opinions.

Q2 FY26 financial performance: income down, loss wider

On the standalone basis, total income in Q2 FY26 came in at ₹964.98 crore, down from ₹1,023.37 crore in Q1 FY26 and ₹1,093.01 crore in Q2 FY25. Operating profit before provisions and contingencies declined to ₹93.25 crore, compared with ₹124.92 crore in the previous quarter and ₹143.03 crore a year ago. Provisions and contingencies remained the biggest drag, at ₹248.67 crore in Q2 FY26.

The bank reported a loss after tax of ₹115.81 crore in Q2 FY26, compared with a loss of ₹81.22 crore in Q1 FY26 and a loss of ₹190.07 crore in Q2 FY25. Earnings per share remained negative at -₹2.25 (basic) for the quarter. For the half-year (H1 FY26), the bank reported a loss after tax of ₹197.03 crore.

Costs and provisioning: operating expenses eased YoY

Interest expended was ₹455.76 crore in Q2 FY26, largely unchanged sequentially versus ₹450.36 crore in Q1 FY26. Operating expenses were ₹415.97 crore, lower than ₹448.09 crore in the previous quarter and ₹493.92 crore in Q2 FY25. Employee cost stood at ₹158.40 crore and other operating expenses at ₹257.57 crore.

Despite the cost line improving year-on-year, provisions and contingencies stayed high at ₹248.67 crore in Q2 FY26. This kept profitability under pressure and resulted in a negative return on assets (ROA) of -0.43% for the quarter.

Asset quality: GNPA rises to 8.54%

Asset quality indicators weakened. Gross NPA rose to ₹1,634.57 crore as of 30 September 2025, up from ₹1,363.63 crore as of 30 June 2025 and ₹1,279.33 crore as of 30 September 2024. Gross NPA as a percentage of gross advances increased to 8.54% in Q2 FY26 from 7.48% in Q1 FY26 and 6.98% in Q2 FY25.

Net NPA increased to ₹696.40 crore, with net NPA ratio at 3.83% in Q2 FY26 versus 3.77% in Q1 FY26 and 2.98% in Q2 FY25. The filing also noted that under the COVID-19 resolution framework, 772 accounts classified as standard slipped to NPA during the half year.

Capital and balance sheet: CAR steady, net worth lower

The bank’s capital adequacy ratio (Basel II) was 22.43% in Q2 FY26, compared with 22.74% in Q1 FY26 and 23.16% in Q2 FY25. Paid-up equity capital stood at ₹515.51 crore (face value ₹10). Net worth was reported at ₹1,748.50 crore as of 30 September 2025, down from ₹1,863.79 crore as of 30 June 2025 and ₹2,333.00 crore as of 30 September 2024.

The bank also disclosed a Tier II capital raise of ₹115.00 crore during the quarter and half year, and an allotment of 85,883 shares under employee stock options during H1 FY26.

Segment snapshot: treasury and other operations

Segment reporting in the filing showed treasury revenue of ₹95.40 crore in Q2 FY26, down from ₹137.54 crore in Q1 FY26 and ₹144.34 crore in Q2 FY25. “Other banking operations” revenue was ₹45.92 crore in Q2 FY26, up from ₹39.29 crore in Q1 FY26 and ₹28.40 crore in Q2 FY25.

For profitability by segment, the retail segment reported a loss before tax of ₹214.24 crore in Q2 FY26. Retail segment assets were ₹18,096.97 crore as of 30 September 2025.

Cash flow and other disclosures

The cash flow statement showed net cash outflow from operating activities of ₹1,830.32 crore for H1 FY26, versus a net inflow of ₹3,176.32 crore in FY25. Net cash used in investing activities was ₹169.67 crore for H1 FY26, while net cash inflow from financing activities was ₹707.19 crore. Overall, cash and cash equivalents decreased by ₹953.46 crore in H1 FY26.

The bank also stated that it has no subsidiaries, associates, or joint ventures as of 30 September 2025. It disclosed that it absorbed 5,109 trained employees from ESAF Swasraya Multi State Agro Co-operative Society Limited (ESMACO), with compensation of ₹58.00 crore reported as an exceptional item in prior periods.

Annual context: FY25 loss against FY24 profit

On an annual basis, ESAF SFB reported total income of ₹4,329.31 crore for FY25 versus ₹4,260.25 crore for FY24. However, FY25 ended with a net loss of ₹521.39 crore versus a net profit of ₹425.57 crore in FY24. Separately, for FY24 the bank reported net interest margin (NIM) of 10.7% compared with 10% in FY23.

Key numbers at a glance

Market impact: what changed in the operating picture

The quarter’s headline was the combination of softer income and elevated credit costs. Total income declined quarter-on-quarter, and operating profit before provisions also fell, limiting the buffer against provisions. With gross and net NPA ratios moving up, the filing points to asset quality pressure alongside a higher provisioning requirement.

At the same time, the bank’s capital adequacy ratio remained above 22%, which the results highlight as a stabilising factor in the reported period. Net worth, however, declined compared with both the previous quarter and the year-ago period, reflecting the impact of losses.

Why the results matter: linking numbers to disclosures

The filing’s disclosures around NPAs, including standard accounts slipping to NPA during the half year, help explain why provisions remained a dominant line item. The segment data also indicates that treasury income declined versus the previous quarter, contributing to the overall income compression.

The cash flow data adds another dimension. A net operating cash outflow in H1 FY26, along with a fall in cash and cash equivalents, is an important datapoint alongside profitability and asset quality metrics.

Conclusion

ESAF SFB’s Q2 FY26 results showed a wider loss, lower income, and higher NPA ratios, while maintaining a capital adequacy ratio above 22%. The next set of disclosures around asset quality movement, provisioning trends, and quarterly profitability will remain central to tracking the bank’s turnaround path.