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Elevated credit costs in FY27
View Risks →ESAF Small Finance Bank Limited — Q4 FY26
ESAF Small Finance Bank reported Q4 FY26 PAT of ₹24 crore, a sharp sequential improvement from ₹7 crore in Q3, driven by portfolio rebalancing toward secured assets (now 61% of advances) and lower slippages.
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2-Minute Summary
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ESAF Small Finance Bank reported Q4 FY26 PAT of ₹24 crore, a sharp sequential improvement from ₹7 crore in Q3, driven by portfolio rebalancing toward secured assets (now 61% of advances) and lower slippages. Gross NPA declined to 5.4% from 6.9% YoY, while NIM expanded to 7.3% from 6.6% QoQ. Disbursements grew 88% YoY to ₹12,926 crore, with 78% in secured loans. Management guided for steady-state credit cost of 2% by FY28 and ROA target of 2%, supported by a 20-25% loan growth trajectory and cost-to-income ratio of ~65%. Key risk: elevated credit costs may persist through FY27 due to legacy NPA provisioning.
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Gross NPA
5.4%
-150bps YoY
Improved from 6.9% a year ago, reflecting better asset quality.
Net NPA
1.8%
-120bps YoY
Declined from 3.0% YoY, indicating lower stress.
Slippage Ratio (FY26)
6.47%
-400bps YoY
Reduced from 10.47% in FY25, driven by better collections.
Secured Loan Mix
61%
+8pp YoY
Increased from 53% last year, targeting 70% by March 2027.
What Changed vs Last Quarter
NEW
Loan growth of 20-25% on steady-state basis
The bank expects annual loan growth of 20-25%, excluding IBPC sales, supported by network leverage.
UPDATED
Secured asset mix target of 70% by March 2027
Management reiterated the goal to increase secured loan share to 70% by end of FY27, up from 61% currently.
UPDATED
Steady-state credit cost of 2% by FY28
CFO guided that normalized credit cost will be around 2% from FY28 onwards, as legacy provisioning clears.
UPDATED
ROA target of 2% by FY28
Management expects to achieve a return on assets of 2% by FY28, with traction visible in the next two quarters.
DROPPED
Loan growth of ~25% in FY27
Management expects loan book growth of around 25% in FY27, up from ~15% in FY26.
NEW RISK
Elevated credit costs in FY27
CFO acknowledged that backlog provisioning on NPA stock will continue through FY27, keeping credit costs above steady-state 2%.
NEW RISK
NIM compression from secured shift
As the bank shifts to secured lending (lower yields), NIM may trail loan growth; management guided NIM around 7% plus/minus 0.5%.
NEW RISK
Execution risk in digital transformation
Core banking upgrade (Bank 2.0) is expected to complete by Q3 FY27; delays could impact operational efficiency.
RISK GONE
Residual stress in microfinance book
Despite stabilization, the microfinance book still carries elevated NPA levels and write-offs of ₹1,008 crore in 9M FY26.
RISK GONE
Slower-than-expected ROA normalization
Management indicated ROA normalization to 1.5-2% may take until FY28, implying near-term profitability pressure.
RISK GONE
Credit cost volatility from legacy portfolio
Backlog of NPAs to be absorbed may keep credit costs elevated in the near term, delaying margin recovery.
Fast read
Guidance and risk preview
Management reiterated the goal to increase secured loan share to 70% by end of FY27, up from 61% currently.
CFO acknowledged that backlog provisioning on NPA stock will continue through FY27, keeping credit costs above steady-state 2%.
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