ESAF Small Finance Bank Limited — Q4 FY26

ESAF Small Finance Bank Limited Q4 FY2025-26 Earnings Conference Call https://www.youtube.com/watch?v=_CGoqDKpcP0 Published: 9 days ago

0:01 1 second Ladies and gentlemen, good day and welcome to ISAF Small Finance Bank Limited's Q4 FY26 earnings conference 0:09 9 seconds call. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation 0:17 17 seconds completes. Should you need assistance during the conference call, please signal an operator by pressing star then 0:24 24 seconds zero on your touchtone. Please note that this conference is being recorded. I now hand the conference over to Dr. K. 0:32 32 seconds Paul Thomas, MG and CEO of ISAF Small Finance Bank. Thank you and over to you, sir. 0:40 40 seconds Thank you. Thank you. Good afternoon and welcome to ISAF Small Finance Bank's 0:47 47 seconds Q4 and FI26 earnings calls. On behalf of the board and the management team, I 0:54 54 seconds thank you for joining us today and for your continued interest in ISA Small Finance Bank. Joining me today are my 1:02 1 minute, 2 seconds colleagues, Mr. Josh Kon, executive director, and Mr. Girish, CP, EVP, and CFO. At Isaf Small Finance Bank, our 1:12 1 minute, 12 seconds strategic focus remains on building a granular, diversified, and increasingly secured lending portfolio, which we 1:20 1 minute, 20 seconds believe is essential for improving asset quality, earning stability, and long-term scalability. At the same time, 1:28 1 minute, 28 seconds our commitment to financial inclusion and serving the underserved segments continues to be a core differentiator of our franchise. 1:38 1 minute, 38 seconds As outlined in our previous call, our mark strategy, MSME, agriculture, retail 1:45 1 minute, 45 seconds and gold loans is central to to this transition. 1:50 1 minute, 50 seconds This approach is enabling us to diversify risk, improve portfolio quality and reduce dependence on 1:58 1 minute, 58 seconds unsecured segment. During the year, these segments have delivered healthy and broad-based growth aligned with our 2:06 2 minutes, 6 seconds strategic priorities. Our focus on secured lending, discipline underwriting and calibrated risk management is now beginning to reflect in our performance. 2:17 2 minutes, 17 seconds In Q4 FI26, we have seen sequential improvement across key financial parameters, including asset quality and 2:26 2 minutes, 26 seconds profitability metrics, indicating early outcomes of the strategic shift underway. On the liability and customer 2:35 2 minutes, 35 seconds side, we continue to deepen our presence across rural, semi-urban, and urban markets. During the year, we crossed a 2:44 2 minutes, 44 seconds milestone of 10 million customers with a strong representation of women borrowers. We see this as a structural 2:53 2 minutes, 53 seconds strength of our model, contributing to both portfolio resilience and long-term franchise value. From a sector 3:01 3 minutes, 1 second perspective, the micro finance industry is showing stable signs of stabilization after a period of stress. Collection 3:09 3 minutes, 9 seconds efficiencies have improved and operating conditions are gradually normalizing supported by better borrower discipline, 3:18 3 minutes, 18 seconds better credit under generating and easing delinquencies. 3:22 3 minutes, 22 seconds While external factors including geopolitical developments remain a wash point, we believe the sector is now on a 3:30 3 minutes, 30 seconds more stable trajectories. Looking ahead, our priorities remain clearly defined. 3:36 3 minutes, 36 seconds increasing the share of secured assets, improving asset quality, strengthening profitability, driving operating 3:44 3 minutes, 44 seconds efficiency and improve customer experience. 3:48 3 minutes, 48 seconds This will be supported by continued investments in technology distribution and analytics decision making. With 3:55 3 minutes, 55 seconds that, I now invite our executive director, Mr. Josh, to take you through the performance highlights. 4:07 4 minutes, 7 seconds Thank you Paula and uh good afternoon everyone. 4:11 4 minutes, 11 seconds We continue to build on the momentum from the previous quarter with a clear focus on sustainable growth and financial disciplines. 4:20 4 minutes, 20 seconds As a result, we have seen sequential improvements across key operating and financial 4:28 4 minutes, 28 seconds metrics including profitability, asset quality, moderation capages, improved operational efficiency and strengthening return ratios. 4:39 4 minutes, 39 seconds As of 31st March 2026, our bank total business stood at 48,276 4:45 4 minutes, 45 seconds crores, releasing a 50% yearon-year growth compared to 4,55 crores last 4:52 4 minutes, 52 seconds year. Gross advances grew by 19%age while deposits increased by 11% 4:59 4 minutes, 59 seconds reflecting balance growth across both sides of the balance sheet. On logical side deposits remain strong at 22% of 5:09 5 minutes, 9 seconds total deposits compared to 93% last year. Further 88% of B deposits carries a non 5:17 5 minutes, 17 seconds prepayment clause providing stability to our funding basis. Our LCR the liquidity 5:23 5 minutes, 23 seconds cover ratio stood at 143.35% as of 31st March 2026 indicating a comfortable liquidity position. 5:33 5 minutes, 33 seconds dispersement during Q4 efforts grew by 88 first place YI and reminded Bly 5:40 5 minutes, 40 seconds stable sequentially for the full year we record our highest average dispersement of 40,530 5:47 5 minutes, 47 seconds crores resulting 103% growth or FI25 this growth was worth it with a mark 5:55 5 minutes, 55 seconds portfolio conveying to be the key driver growing by 1% during the year importantly 82% First of all, the 6:03 6 minutes, 3 seconds postage work dispersements work towards secure effect in line with our static priorities. 6:09 6 minutes, 9 seconds On the advanced side, our micro book remains stable at 8,740 scores as of March 206. The secured loan mix improves 6:18 6 minutes, 18 seconds to 61% compared to 63% last year driven by the continued scaling of mark 6:25 6 minutes, 25 seconds portfolio. Overall mark advances grew by 4% yearonear withdraw loan and mortgage 6:32 6 minutes, 32 seconds loans which delivered growth of over 50%. 6:36 6 minutes, 36 seconds The ongoing portfolio transition is considering asset quality reducing earnings volatility and and supporting 6:44 6 minutes, 44 seconds sustainable growth given the lately lower NPA profile profile of the segment. We have also seen a decline in 6:52 6 minutes, 52 seconds first liage on sequential basis supported by improved costing efficiencies and calcium discipline. 6:59 6 minutes, 59 seconds Notably, there was more ARC sales for techn during this quarter reflecting underlying portfolio stability. We 7:06 7 minutes, 6 seconds remain on track to achieve our stated target of 70% secured assets by March 2007. Our distribution network convers 7:15 7 minutes, 15 seconds to be a key strength 89 for banking outlets 7 ATMs,44 custom service centers and 32 7:23 7 minutes, 23 seconds institutional business correspondents across 24 states and two unit terries which enabling deep customer uh reach 7:30 7 minutes, 30 seconds and and engagement on the micro portfolio. They're adopting a cultured and risk risk cover approach 7:39 7 minutes, 39 seconds aligned with the improving operating environment. Key initiatives include strengthening field engagement through 7:46 7 minutes, 46 seconds sums and group process enhancements, targeted source of higher quality customer, structured graduation to 7:52 7 minutes, 52 seconds injure lending and focus resolution of billant accounts with improving trends and discipline and unrising. We believe 8:01 8 minutes, 1 second the portfolio is now on a stable footing on technology front of 2.0 standard 8:08 8 minutes, 8 seconds remains a key strategic initiative. This digital transformation program is aimed at laying a strong and agile foundation 8:16 8 minutes, 16 seconds on our core technology infrastructure and business applications. We are making steady progress on the same and we 8:23 8 minutes, 23 seconds expect implementation to be completed well before this calendar year that is before Q3 527. 8:30 8 minutes, 30 seconds It will bring in in the much needed ability to quickly adapt to the emerging markets needs, enhance operation efficiency, better attack governance, 8:39 8 minutes, 39 seconds improved risk management and enrich customer experience and service. Our our progress in digital transformation has been recognized through multiple 8:48 8 minutes, 48 seconds industry award including the digital transformation excellence award at theati one exchange program and and the 8:55 8 minutes, 55 seconds best digital trans inclusion award from the Indian bank association. Overall the improvement in performance during the 9:02 9 minutes, 2 seconds second half of the year has been driven by titer and writing calibrated growth improved collections course discipline 9:09 9 minutes, 9 seconds and a better mix. We remain focused on sustaining this momentum through this plan through disciplined execution of strategic priorities in the coming year. 9:20 9 minutes, 20 seconds With that I now invite our CFO Mrs. MP to take you through the detail financial performance. 9:28 9 minutes, 28 seconds Thank you sir. Good afternoon everyone and thank you for joining us today. Let me take you through the key financial highlights of Q4 F526. 9:38 9 minutes, 38 seconds As of 31st March 2026, total deposit stood at 25,850 crores, registering a YOI growth of 9:47 9 minutes, 47 seconds 11%age over 23,27 with a credit deposit ratio of 83.5%. 9:56 9 minutes, 56 seconds Retail deposits increased to 23,674 cringing 10:03 10 minutes, 3 seconds 9%age YI and now constitute 92%age of the total deposits reflecting a stable 10:10 10 minutes, 10 seconds and granular funding base. Kasa balances grew to 6,181 cr up by 7%age YI with a Kasa ratio of 23.9%. 10:23 10 minutes, 23 seconds We expect Kasa traction to gradually improve supported by continued focus on customer acquisition, service quality 10:31 10 minutes, 31 seconds and branch growth. Dispersements for the quarter stood at 12,926 crores 10:37 10 minutes, 37 seconds reflecting a strong 88%age YI growth secured lending constituted 78%age of 10:44 10 minutes, 44 seconds the dispersements marking the sixth consecutive quarter with overall 75%age share in line with a strategy of 10:53 10 minutes, 53 seconds improving portfolio quality. Gross advances increased to 22,426 crores from 18,779 11:02 11 minutes, 2 seconds cr a year ago up 19%age Yi. The sequo largely driven by mark segments grew 11:10 11 minutes, 10 seconds 47%age Y while the micro finance portfolio remained stable in absolute terms 11:18 11 minutes, 18 seconds with a share reducing from 39%age from 47%age last year. The net interest 11:25 11 minutes, 25 seconds income for the quarter was 518 crores compared to 432 crores in the previous quarter. Net interest margin improved to 11:33 11 minutes, 33 seconds 7.3%age from 6.6%age supported by lower cost of funds and reduction in fresh slip wages. 11:42 11 minutes, 42 seconds Pre-provisioning operating profit stood at 241 crores up 166%age on Yi basis 11:49 11 minutes, 49 seconds driven by business growth and higher fee income. Other income grew by 39%age Y during the quarter. 11:57 11 minutes, 57 seconds Profit after tax for Q4 FI26 to net 24 crores compared to 7 crores in Q3. ROA 12:05 12 minutes, 5 seconds and ROE improved to.1%age and 1.3%age respectively for the quarter. These are 12:12 12 minutes, 12 seconds nonanualized numbers. On asset quality, GNPA declined to 5.4%age 4 percentage 12:20 12 minutes, 20 seconds from 6.9%age and net NPA to 1.8%age from 3%age on a YI basis. Slippage is reduced 12:29 12 minutes, 29 seconds significantly to 106 crores compared to 427 crores in the last year fourth quarter. 12:36 12 minutes, 36 seconds This improvement reflects the shift in portfolio means better collection efficiency and disciplined undertaking 12:43 12 minutes, 43 seconds along with contribution from NPA resolution. Our slippage ratio on gross basis reduced from 10.47%age 12:52 12 minutes, 52 seconds for FI25 to 6.47%age on FI26. 12:58 12 minutes, 58 seconds If you take for the last quarter it is 0.54 percentage 13:04 13 minutes, 4 seconds uh on a non annualized basis for Q4 FI26 it also shown improvement on quarterly 13:14 13 minutes, 14 seconds bas on quarterly basis credit cost came down from 6.72%age in FI27 13:20 13 minutes, 20 seconds FI25 to 474%age in FI26 FI26 was effective ly a year of two 13:30 13 minutes, 30 seconds halves. While the first half was impacted by a challenging operating environment, the second half saw a clear 13:37 13 minutes, 37 seconds improvement in performance driven by portfolio rebalancing towards better asset quality, improved operating 13:45 13 minutes, 45 seconds efficiency and cost discipline. With a stabilizing external environment and continued execution of our strategic 13:53 13 minutes, 53 seconds priorities, we expect further improvement in asset quality, margins and return ratios while maintaining a 14:01 14 minutes, 1 second disciplined and sustainable growth trajectory. Thank you. 14:07 14 minutes, 7 seconds And the floor can floor is open for question and answers. 14:11 14 minutes, 11 seconds Thank you very much sir. Ladies and gentlemen, we will now begin with a question and answer session. Anyone who wishes to ask questions may please press 14:19 14 minutes, 19 seconds star and one on the touchstone. If you wish to withdraw yourself from the question, you may press star and two. 14:26 14 minutes, 26 seconds Participants are requested to use only hands while asking a question. Ladies and gentlemen, we will wait for a moment while the question ascends. You may press star and want to ask questions. 14:43 14 minutes, 43 seconds The first question is from the line of Deepak Podar from Sapphire Capital. Please go ahead. Hello. Am I audible sir? 14:52 14 minutes, 52 seconds Yes sir. 14:53 14 minutes, 53 seconds Okay. Yeah. Um thank you very much for this opportunity. So I just wanted to understand first up now given the portfolio mix is more towards secured 15:01 15 minutes, 1 second currently it is 60% and we are targeting 80%. And um so so what sort of u normalized credit cost we are 15:10 15 minutes, 10 seconds expecting with such kind of portfolio and by when uh a small correction on the unsecured book uh we are given a uh you know 15:19 15 minutes, 19 seconds gliding path up to 30%age not 20% 30% we are planning to and uh the credit 15:29 15 minutes, 29 seconds cost going forward uh if you see the credit cost for the current quarter alone it is 1.08 15:36 15 minutes, 36 seconds and this includes uh uh this has some backlog of provisioning on the stock of NPA. So steady state basis uh you know a 15:46 15 minutes, 46 seconds 2%age credit cost uh is an expected kind of uh stuff going forward. 15:52 15 minutes, 52 seconds Okay. And and by when we can achieve that this year also there will be some backlog on provisioning. 16:01 16 minutes, 1 second uh from FI28 you can expect. 16:05 16 minutes, 5 seconds Okay. Okay. Understood. So some some background on provisioning will continue in FI27. So a 2% kind of a credit cost steady state we can see by FI28. 16:14 16 minutes, 14 seconds Yes. 16:15 16 minutes, 15 seconds Okay. And sir any anything on the growth and ROA thing on FI27? I mean any outlook you want to share uh that would be very helpful. 16:23 16 minutes, 23 seconds Uh it is a futuristic statement. uh and uh you know I am unable to give you at this moment but one one thing which I can tell is 16:32 16 minutes, 32 seconds that the growth is back and uh the asset quality uh problems are almost over and 16:39 16 minutes, 39 seconds going forward we will be on a steady kind of growth that is what is expected okay so so what you're trying to say 16:47 16 minutes, 47 seconds growth is back asset quality problem is over so ideally we will see a much better performance than what uh we would have been seeing Great. 16:57 16 minutes, 57 seconds Yeah. Also, we have we have we have a we have built over a period of last nine years, we built a great franchise uh 17:04 17 minutes, 4 seconds spread across 26 states. So, we have 804 branches. We have 32 institutional business correspondent partners. So, 17:13 17 minutes, 13 seconds they they are operating uh thousand plus customer service centers. So um last uh two years because of the uh asset 17:22 17 minutes, 22 seconds quality issues and challenges we were actually not able to fully leverage on the network we built. So going forward 17:29 17 minutes, 29 seconds we are seeing a a great opportunity to leverage on the network we built and mostly these in the rural and semi-urban 17:38 17 minutes, 38 seconds areas of India. So the products we have developed uh are relevant for these markets and that that's where you will 17:45 17 minutes, 45 seconds uh I hope uh you got my point uh that how we are how we are positioning ourselves. Yeah. 17:52 17 minutes, 52 seconds Correct. Correct. And and given this portfolio mix more towards secured now since now your credit cost you mentioned steady state would be 2%. So what sort 18:00 18 minutes of steady state uh ROA I mean uh with with with this current the MARG focus 18:06 18 minutes, 6 seconds that we have uh we are planning to have an ROA of 2%age. Uh-huh. 18:14 18 minutes, 14 seconds And that too I mean we will target to achieve by FI28. Yeah. Okay. Okay. Okay. 18:21 18 minutes, 21 seconds We will start seeing the the traction in another couple of uh next two quarters. 18:28 18 minutes, 28 seconds So you can see that the trend we will see. 18:31 18 minutes, 31 seconds Okay. Next two quarters maybe a traction we might expect in ROA front as well. Yeah. Okay. Yes. Yeah. 18:39 18 minutes, 39 seconds Okay. I think that's pretty much uh I mean that's very helpful sir. I wish you all the best. Thank you. Thank you. Thank you Deep. Thank you. Thank you so much. 18:47 18 minutes, 47 seconds Thank you. 18:51 18 minutes, 51 seconds A reminder to all the participants that you may please press star and one to ask questions. The next question is from the line of Amit Mahendali from Robo Capital. Please go ahead. 19:03 19 minutes, 3 seconds Thank you. Uh so my first question is uh you know on the loan book growth. I think this year have grown by about uh 19:09 19 minutes, 9 seconds 19% or odd. So going forward I mean one can expect maybe 18 20 22% because they're coming out of a you know lean 19:17 19 minutes, 17 seconds period like years have been very challenging and now once the credit uh you know cost issues are behind us we 19:24 19 minutes, 24 seconds should be able to uh you know see a healthy growth right maybe 20% or I mean what do you think I mean you may not 19:31 19 minutes, 31 seconds give me a number but broadly I think the trajectory should continue yeah this year you know we have done 19:39 19 minutes, 39 seconds some IBPC also is where uh we have done offloaded books to the extent of 650 crores which is not there in the growth 19:46 19 minutes, 46 seconds numbers and you know on a steady state basis 20 to 25 percentage uh is the growth which we are looking 19:55 19 minutes, 55 seconds right thanks any guidance on cost to income ratio going forward cost to income ratio uh somewhere around 20:04 20 minutes, 4 seconds 65 plus or minus 2%age is the uh you know guidance which we are we would like to guess. 20:12 20 minutes, 12 seconds Great. And my last question is on NI. Uh now that our secured book is you know uh growing faster uh than the unsecured 20:20 20 minutes, 20 seconds book and will have a larger proportion in the loan book will NI grow in tandem with the loan book growth like like suppose you know the loan book growth will say 20%. 20:30 20 minutes, 30 seconds Do you think NI will NI should trail the loan book growth? Right. Right. 20:36 20 minutes, 36 seconds Yeah. NI you know almost steady state basis it has faced uh so somewhere 20:43 20 minutes, 43 seconds around 7%age plus or minus half percentage will be the NI going forward 20:50 20 minutes, 50 seconds okay great that's it from my end thank you very much thank you thank you thank you thank you 20:57 20 minutes, 57 seconds participants who wishes to ask questions may please press star and run 21:18 21 minutes, 18 seconds You may press star and one to ask questions. 21:52 21 minutes, 52 seconds Anyone who wishes to ask questions may please press star and one on their touchstone phone. 22:07 22 minutes, 7 seconds I think if uh there is no other questions uh can we as there are no sure sir as there are no further questions I now hand the 22:14 22 minutes, 14 seconds conference over to the management for closing comments. Thank you and over to you sir. 22:19 22 minutes, 19 seconds Thank you. Thank you. So thank you so much uh for participating in the call. 22:23 22 minutes, 23 seconds So we believe we have taken the right strategic steps and hopefully supported uh by a positive macro environment. So 22:32 22 minutes, 32 seconds we can expect to see continued growth in the coming years. So I would like to thank all the participants, investors and analysts for taking the time out uh 22:41 22 minutes, 41 seconds for this conference call today. In case you have any follow-up questions or inquiries, u you can always reach reach out to our investor relations team. 22:51 22 minutes, 51 seconds Thank you very much. Thank you. Thank you all. Thank you members of the management. 22:57 22 minutes, 57 seconds Thank you sir. Ladies and gentlemen, on behalf of ISAF Small Finance Bank Limited, that concludes this conference. 23:04 23 minutes, 4 seconds We thank you for joining us and you may now disconnect your