ESAF Small Finance Bank Q3 FY26: A Turnaround Quarter Driven by Secured Lending and Digital Push

ESAF Small Finance Bank Limited has announced its financial results for the third quarter and nine months ended December 31, 2025 (Q3 FY26 and 9MFY26), signaling a significant turnaround in its business performance. The bank reported a Profit After Tax (PAT) of 7.12 crore for Q3 FY26, a welcome return to profitability after experiencing losses in previous periods. This positive shift is underpinned by robust growth in gross advances and disbursements, coupled with a strategic de-risking of its loan portfolio. The bank's total business stood at INR 44,686 crore as of December 31, 2025, reflecting a healthy year-on-year growth of 10%. This performance highlights the effectiveness of the bank's strategic actions and disciplined execution in a dynamic macro-economic environment.

The bank's core strategy, termed 'MARG' (MSME, Agri, Retail, Gold), has been instrumental in reshaping its portfolio mix towards more secured lending. This deliberate shift is evident in the secured assets now constituting 63% of gross advances, a substantial increase from 45% a year ago. Gold loans, in particular, have emerged as a strong performer, recording an 89% year-on-year growth and 16% quarter-on-quarter, driven by sustained demand from rural and semi-urban customer bases. Total disbursements witnessed remarkable momentum, growing by 150% year-on-year and 46% quarter-on-quarter, reaching approximately INR 13,000 crore in Q3 FY26. This broad-based growth across segments underscores the strength of underlying demand and the successful execution of the bank's high-quality lending strategy. The microfinance group, while rationalized to INR 7,500 crore from INR 10,000 crore in Q3 FY25, is showing signs of stabilization after industry-wide stress, with improving collection efficiencies.

| Financial Highlights (Q3 FY26) | Value (INR Crore) | | :----------------------------- | :---------------- | | | Interest Income | 894.05 | | Other Income | 269.39 | | Net Interest Income | 432.33 | | Net Total Income | 701.72 | | Pre-Provision Operating Profit | 252.51 | | Profit After Tax | 7.12 | | Gross Advances | 20,679 | | Total Deposits | 24,006 | | CASA Balances | 6,030 | | Shareholders' Funds | 1,756 |

Asset quality has shown clear signs of improvement, with Gross NPA declining to 5.6% and Net NPA to 2.7% in Q3 FY26. This moderation in slippages and improved operating efficiency contributed significantly to the bank's return to profitability. The bank's Net Interest Income (NII) increased to INR 432 crore in Q3 FY26, driven by healthy loan growth and lower slippages. The Net Interest Margin (NIM) also improved to 6.6% from 5.9% in the previous quarter, despite a higher share of secured lending and further rate cuts. This indicates effective fund deployment and management of the cost of funds. The bank's distribution footprint remains a key differentiator, with 788 banking outlets, 720 ATMs, over 1,042 customer service centers, and 31 institutional business correspondents across 24 states and 2 union territories, enabling deep customer reach.

| Key Ratios (Q3 FY26) | Value (%) | | :------------------- | :-------- | | | GNPA | 5.6 | | NNPA | 2.7 | | PCR | 53.8 | | CRAR | 22.7 | | NIM | 6.6 | | ROA | -0.9 | | ROE | -13.8 |

ESAF Small Finance Bank is also making significant strides in its digital transformation journey with 'ESAF 2.0 StratoNeXt', targeting a go-live by Q2 FY27. This initiative aims to enhance operational efficiency, scalability, risk management, and customer experience through advanced digital platforms. The bank's commitment to technology-led service delivery is evident in its various digital measures, including internet banking, mobile banking, and digitalized processes for account opening and loan underwriting, which contribute to reduced turnaround times. Furthermore, the bank has received an upgraded CareEdge ESG Rating, scoring 75.4, placing it in a leadership position for best-in-class disclosures and robust policies.

Looking forward, ESAF Small Finance Bank anticipates continued growth and normalization of key financial metrics. Management expects credit costs to normalize to around 2% to 3% by Q1 FY27 and aims for a steady-state Return on Assets (ROA) of 1.5% to 2% by FY28. Loan growth is projected at approximately 15% for FY26 and 25% for FY27. The bank views FY26 as a year of consolidation, focusing on improving asset quality, strengthening operating metrics, and pursuing disciplined growth. With a stable operating environment and strategic initiatives gaining traction, ESAF Small Finance Bank is well-positioned to drive its next phase of sustainable and resilient growth, reinforcing its founding purpose of fostering financial inclusion and socioeconomic progress.