ESAF Small Finance Bank has delivered a notable turnaround in the third quarter of FY26, marking a return to profitability while strengthening its balance sheet through a decisive shift towards secured lending.
The bank has reported improved asset quality, robust growth in its MARG portfolio that comprises MSME, agri, retail and gold loans and steady expansion across key business metrics for the quarter ended December 31, 2025.
The Thrissur-headquartered lender has posted a net profit of Rs 7 crore for Q3 FY26, reversing a loss of Rs 211 crore recorded in the same quarter last year and a loss of Rs 115.81 crore in the preceding quarter.
Total business has stood at Rs 44,686 crore as of December 31, 2025, registering a year-on-year growth of 10 per cent. Gross advances have increased by 13.1 per cent to Rs 20,679 crore, while deposits have risen by 7.1 per cent to Rs 24,006 crore.
A key highlight of the quarter has been the sharp rise in secured lending. Secured loan disbursements have surged 149 per cent year-on-year to Rs 10,530 crore, taking the share of secured assets to 63 per cent of gross advances, compared to 45 per cent a year ago. This progress has reinforced the bank’s stated roadmap of achieving a 70 per cent secured portfolio by March 2027.
Gold loans have emerged as the primary growth engine, with the portfolio expanding to Rs 8,669 crore, reflecting 89 per cent year-on-year growth and 16 per cent sequential growth. In contrast, the microfinance portfolio has declined from Rs 10,000 crore in Q3 FY25 to Rs 7,583 crore in Q3 FY26, reducing its contribution to total advances from 55 per cent to 37 per cent as part of a calibrated de-risking strategy.
Operating performance has also strengthened during the quarter. Net interest income has increased to Rs 432 crore from Rs 372 crore in the previous quarter, while net interest margin has improved to 6.5 per cent, supported by a better asset mix and a lower cost of funds. Pre-provisioning operating profit, excluding one-time income, has climbed to Rs 183 crore, registering a sequential growth of 96.77 per cent and a year-on-year increase of 44 per cent. Other income, excluding one-time items, has also improved by Rs 55 crore on a quarter-on-quarter basis.
Asset quality indicators have shown a meaningful recovery, with gross non-performing assets declining to 5.6 per cent from 8.5 per cent in the previous quarter and net non-performing assets improving to 2.7 per cent from 3.8 per cent. During the quarter, the bank has made provisions of Rs 243 crore towards stressed assets. Capital adequacy has remained comfortable, with the capital to risk-weighted assets ratio standing at 22.7 per cent, while the cost of funds has been maintained at 7.3 per cent.
On the liabilities side, retail deposits have continued to anchor growth, rising 8 per cent year-on-year to Rs 22,426 crore and accounting for 93 per cent of total deposits. CASA balances have increased to Rs 6,030 crore, improving the CASA ratio to 25.1 per cent. Customer acquisition momentum has remained strong, with nearly two lakh new customers added during the quarter, taking the total customer base to 99.9 lakh.
Management has attributed the improved performance to disciplined execution of the MARG strategy and a sharper focus on secured, granular lending.
The bank has reiterated its commitment to building a resilient balance sheet through continued investments in technology, operational efficiency and risk management, while remaining aligned with its broader mission of inclusive banking and financial access.
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