ESAF Small Finance Bank (NSE: ESAFSFB) reported a profit after tax of ₹7 crore in Q3 FY26, reversing a loss of ₹116 crore in Q2 FY26, aided by higher pre-provision operating profit and lower sequential stress costs. For the nine months ended December 2025, the bank recorded a net loss of ₹190 crore, compared with profitability in prior full-year periods.
Total income from operations rose to ₹1,16,344 lakh in Q3 FY26, compared with ₹96,498 lakh in Q2 FY26, reflecting higher retail segment income. Nine-month operating income stood at ₹3,15,179 lakh, slightly lower year-on-year due to treasury income contraction.
Operating Performance
Pre-provision operating profit increased to ₹253 crore in Q3 FY26 from ₹93 crore in Q2 FY26, while nine-month pre-provision operating profit was ₹471 crore. The improvement was driven by operating leverage and recovery income, partly offset by elevated provisioning during the year. Net interest margin declined to 6.1% in December 2025 from 8.1% in FY25, reflecting higher funding costs and portfolio. Yield on advances moderated to 16.1%, compared with 18.3% in FY25.
Balance Sheet Trends
Gross advances grew 13.1% year-on-year to ₹20,679 crore, supported by expansion in secured MARG loans, which accounted for 59% of advances. Deposits increased 7.1% year-on-year to ₹24,006 crore, with a stable retail deposit share of 93%. The CASA ratio improved to 25.1% in December 2025 from 24.8% in FY25, while cost of deposits declined to 7.2% from 7.5%.
SWOT Analysis
Strengths:
- High capital adequacy at 22.7%
- Predominantly retail deposit base with 93% retail share
- Increasing secured loan mix at 63% of advances
Weaknesses:
- Net loss of ₹190 crore for nine months FY26
- Declining net interest margins
- Elevated gross NPA at 5.6%
Opportunities:
- Expansion of secured MARG lending portfolio
- Improving CASA ratio and lower deposit costs
- Operating leverage from branch-level advance growth
Threats:
- Credit risk in MSME and microfinance segments
- Margin pressure from competitive deposit pricing
- Macroeconomic stress impacting borrower repayment capacity
Asset Quality
Gross NPA stood at 5.6% and net NPA at 2.7% as of December 2025, showing improvement from earlier periods following portfolio realignment and loan transfers to asset reconstruction companies. Provision coverage ratio declined due to the transfer of higher-provisioned stressed assets to ARCs.
Capital Position
The bank reported a capital adequacy ratio of 22.7%, with Tier I at 16.0%, remaining above regulatory requirements. Shareholders’ funds stood at ₹1,756 crore at the end of December 2025.
Market Context
The bank operates exclusively in India and remains focused on secured retail, MSME, agriculture, and gold lending under its MARG framework. No macroeconomic or sectoral outlook commentary was provided in the uploaded documents.
Forward Outlook
The bank reiterated its focus on secured lending expansion, balance-sheet de-risking, and capital conservation, as outlined in its MARG strategy framework.
No quantitative earnings guidance or growth targets were disclosed.
What Investors Are Watching
- Pace of sustained profitability following Q3 sequential recovery
- Trajectory of net interest margins amid funding cost pressures
- Asset quality movement post ARC transfers
- Growth contribution from secured MARG portfolio
- Capital adequacy and provisioning buffers
Risks & Concerns
- Elevated gross and net NPA levels relative to historical averages
- Margin compression due to higher cost of deposits
- Dependence on secured lending growth to stabilize earnings
- Sensitivity to regulatory changes affecting small finance banks