ESAF Small Finance Bank has announced a crucial Board of Directors meeting scheduled for September 20, 2025, to deliberate on raising Tier I Capital. The bank is exploring various avenues to strengthen its capital base, which could potentially reshape its financial structure.

Key Points of the Announcement

• Board Meeting Date: The Board of Directors will convene on Saturday, September 20, 2025.
• Primary Agenda: To consider and approve proposals for raising Tier I Capital.
• Potential Methods: The bank is considering multiple routes for capital raising, including:
  • Private placement
  • Qualified institutions placement
  • Preferential issue
  • Other methods permitted under applicable laws

Regulatory Compliance and Shareholder Approval

ESAF Small Finance Bank has emphasized that any capital raising initiative will be subject to necessary regulatory and statutory approvals. Additionally, the bank plans to seek shareholder consent for the fund-raising proposal. The board will discuss the possibility of:

• Convening an extraordinary general meeting
• Initiating a postal ballot process

These steps are aimed at ensuring full compliance with regulatory requirements and maintaining transparency with shareholders.

Trading Window Closure

In line with the SEBI (Prohibition of Insider Trading) Regulations, 2015, ESAF Small Finance Bank has announced a trading window closure:

• Closure Period: From September 15, 2025, to September 22, 2025
• Affected Parties: Designated persons and their immediate relatives

This measure is implemented to prevent insider trading and maintain market integrity during this sensitive period.

Implications and Outlook

The decision to explore Tier I Capital raising options suggests that ESAF Small Finance Bank is looking to bolster its financial position. Tier I Capital, often referred to as core capital, is crucial for a bank's financial strength and its ability to absorb potential losses.

By considering various methods of capital raising, including private placement and qualified institutions placement, the bank appears to be keeping its options open to find the most beneficial route for strengthening its capital base.

Investors and market watchers will be keenly awaiting the outcome of the September 20 board meeting, as it could significantly impact the bank's future financial strategy and market position.

For more details, stakeholders can refer to the official announcement available on the bank's website at https://www.esafbank.com/investor-relation/?id=disclosure-to-stock-exchanges .

ESAF Small Finance Bank (ESFBL) has faced a setback as CareEdge Ratings downgraded its debt instruments, citing persistent weakness in asset quality and profitability. The rating action reflects the bank's ongoing challenges in the microfinance sector and its strategic shift towards secured lending.

Rating Downgrades

CareEdge Ratings has lowered the ratings for several of ESFBL's debt instruments:

• Tier-2 bonds revised from CARE A/Negative to CARE A-/Negative
• Proposed ₹385.00 crore lower tier-2 bonds assigned CARE A-/Negative
• ₹500.00 crore certificate of deposits downgraded from CARE A1+ to CARE A1

Financial Performance

The bank's financial performance has been under pressure:

• Net loss of ₹521.00 crore
• Net loss of ₹81.00 crore in Q1
• Four consecutive quarters of net losses

Asset Quality Concerns

ESFBL's asset quality has deteriorated significantly:

• Gross Non-Performing Assets (GNPA) ratio increased to 7.48% as of June 30, up from 4.76% on March 31
• Slippage ratio rose to 10.71% (annualized) in Q1 and 10.29%
• Net Non-Performing Assets (NNPA) to net worth ratio surged to 40.06% as of June 30, from 16.92% on March 31

Strategic Shift

In response to the challenges, ESFBL has implemented strategic changes:

• Recalibrated micro-banking disbursements
• Increased focus on secured lending, particularly gold loans
• Share of micro-banking (including agri) declined from 75% to 51% of total advances
• Share of secured loans increased from 23% to 59%, with gold loans rising from 15% to 34%

Outlook

CareEdge Ratings maintains a negative outlook on ESFBL, expecting continued pressure on profitability and asset quality in the near term. The outlook may be revised to 'Stable' if the bank:

• Successfully raises substantial equity capital
• Demonstrates improved asset quality with a significant reduction in slippage
• Maintains a comfortable capital adequacy buffer above regulatory requirements

Capital Adequacy

Despite the challenges, ESFBL maintains adequate capitalization:

• Capital Adequacy Ratio (CAR) of 22.74% as of June 30
• Tier I CAR of 18.44%
• Raised tier II capital of ₹115.00 crore in July and August

The bank's ability to maintain sufficient capital adequacy by raising additional equity capital will be crucial for its future performance and rating stability.

ESAF Small Finance Bank will need to navigate these challenges carefully, focusing on improving asset quality, strengthening its secured lending base, and enhancing profitability to regain investor confidence and improve its credit ratings.