News Earnings ESAF Small Finance Bank Reports Turnaround with Return to Profitability in Q3 FY26ESAF Small Finance Bank Reports Turnaround with Return to Profitability in Q3 FY26
ESAF Small Finance Bank achieved a significant turnaround in Q3 FY26, returning to profitability with PAT of INR 7 crores and substantial improvement in asset quality. Gross NPA declined to 5.60% and net NPA to 2.70%, while slippages reduced to INR 219 crores from INR 505 crores in Q3 FY25. The bank's MARG strategy has successfully shifted the portfolio toward secured lending, with secured assets now comprising 63% of advances. Total business grew 10% Y-o-Y to INR 44,686 crores, with disbursements showing strong momentum at 134% Y-o-Y growth.
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ESAF Small Finance Bank Limited has reported a significant turnaround in its Q3 FY26 performance, marking a return to profitability and substantial improvement in asset quality metrics. The bank's strategic transformation under its MARG framework has begun yielding positive results, positioning it for sustainable growth ahead.
Financial Performance Highlights
The bank achieved a notable milestone by returning to profitability with a PAT of INR 7 crores in Q3 FY26, marking an important inflection point after previous quarters of losses. This turnaround was supported by improved operating metrics and normalization of credit costs.
| Financial Metric | Q3 FY26 | Previous Performance | Change |
|---|---|---|---|
| Net Interest Income | INR 432 crores | INR 372 crores (Q2 FY26) | Increased |
| Net Interest Margin | 6.60% | 5.90% (Q2 FY26) | +70 bps |
| Pre-Provisioning Operating Profit | INR 253 crores | 171% Q-o-Q, 98% Y-o-Y growth | Strong improvement |
| PAT | INR 7 crores | Negative in previous quarters | Return to profitability |
The improvement in net interest margin to 6.60% from 5.90% despite a higher share of secured lending and rate cuts of 25 basis points demonstrates the bank's ability to maintain healthy margins through better fund deployment and lower cost of funds.
Asset Quality Improvement
The bank witnessed significant improvement in asset quality parameters, reflecting the effectiveness of its strategic initiatives and disciplined execution.
| Asset Quality Metric | Q3 FY26 | Q3 FY25 | Improvement |
|---|---|---|---|
| Gross NPA | 5.60% | Higher levels | Declined |
| Net NPA | 2.70% | Higher levels | Declined |
| Slippages | INR 219 crores | INR 505 crores | Sharp reduction |
This improvement has been supported by stable microfinance performance, disciplined credit underwriting, and increasing contribution of secured lending under the MARG strategy. The bank expects credit costs to normalize by Q1 FY27, with a steady-state credit cost of 2% to 3% given the current portfolio mix.
Business Growth and Portfolio Transformation
The bank's total business stood at INR 44,686 crores as of December 31, 2025, registering healthy year-on-year growth of 10% compared to INR 40,706 crores last year. Gross advances increased to INR 20,679 crores from INR 18,291 crores a year ago, while total deposits reached INR 24,006 crores.
| Business Segment | Current Status | Growth Metrics |
|---|---|---|
| Total Business | INR 44,686 crores | 10% Y-o-Y growth |
| Gross Advances | INR 20,679 crores | 13% Y-o-Y growth |
| Total Deposits | INR 24,006 crores | 7% Y-o-Y growth |
| Disbursements | INR 13,000 crores (quarterly) | 134% Y-o-Y, 46% Q-o-Q |
MARG Strategy Success
The bank's strategic shift towards secured lending through its MARG framework (MSME, Agri, Retail, and Gold loans) has shown remarkable success. Secured assets now constitute 63% of gross advances compared to 45% a year ago, with the bank targeting 70% secured portfolio by March 2027.
Gold loans emerged as a standout performer, recording strong growth of 89% year-on-year and 16% quarter-on-quarter. The MARG segments now account for nearly 60% of total advances, with all constituent segments exhibiting significantly lower NPA levels. Secured lending constituted 81% of total disbursements in Q3 FY26, marking the fifth consecutive quarter where secured assets formed over 75% of new lending.
Deposit Franchise and Distribution Network
The bank maintained a strong and granular deposit base with retail deposits constituting 93% of total deposits. CASA balances grew to INR 6,030 crores, registering 8% Y-o-Y growth with the CASA ratio improving to 25.10%. The bank operates through 788 banking outlets, 720 ATMs, over 1,042 customer service centers, and 31 institutional business correspondents across 24 states and 2 union territories.
Outlook and Strategic Priorities
Management expects loan growth of approximately 15% for FY26 and around 25% for FY27. The bank anticipates achieving a steady-state ROA of 1.50% to 2.00% by FY28, with full impact expected as the portfolio transformation completes. The ESAF 2.0 StratoNeXt digital transformation initiative remains on track with go-live targeted for Q2 FY27, aimed at improving operational efficiency, risk management, and customer experience.
Historical Stock Returns for ESAF Small Finance Bank
| 1 Day | 5 Days | 1 Month | 6 Months | 1 Year | 5 Years |
|---|---|---|---|---|---|
| +2.53% | +5.53% | +8.03% | -4.64% | -18.89% | -57.73% |
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