ESAF Small Finance Bank faces Rs 190cr loss in Q2 amid higher provisions, CASA deposits surge

ESAF Small Finance Bank, a prominent commercial bank headquartered in Thrissur, reported its Q2 FY 2025 financials, revealing a substantial quarterly loss of ₹190 crore, primarily due to increased provisions for stressed assets. Despite the setback, the bank showcased robust growth in secured assets and Current Account Savings Account (CASA) deposits, reflecting a strong focus on customer engagement and financial stability. As CEO K. Paul Thomas explained, the recent financial results highlight ESAF’s expanding outreach and strategic moves to improve asset quality and financial resilience.

Secured Loans and CASA Deposits Show Resilience

The bank saw its secured loan disbursements rise dramatically by 92% year-on-year, reaching ₹5,631 crore in H1 FY 2025, compared to ₹2,937 crore the previous year. This increase reflects ESAF’s strategy to focus on secured loans as a core asset segment, with secured assets now constituting 38% of its portfolio, up from 27% last year. In parallel, ESAF witnessed a 69.3% growth in CASA deposits, climbing to ₹5,319 crore from ₹3,142 crore a year ago, pushing the CASA ratio up to 24.6% from 18.04%.

Provisioning Dampens Quarterly Profit

To safeguard its balance sheet from non-performing loans, ESAF significantly increased its provisions for stressed assets. For the quarter, provisions totaled ₹340 crore, pushing the Provision Coverage Ratio (PCR) to 73.7% from 61.9% in the previous quarter. Consequently, the bank reported a loss of ₹190 crore for Q2, reversing a profit of ₹63 crore from the same quarter last year. The higher provisioning strategy aims to stabilize the bank’s portfolio, reduce its Non-Performing Asset (NPA) load, and prepare ESAF for potential future challenges in asset quality.

CASA Deposits, Total Advances, and Expanding Network

The bank’s growth in CASA deposits is also notable, with total deposits rising by 24.1% year-on-year to reach ₹21,613 crore. As of Q2 FY 2025, the bank’s business advanced by 17.0% year-on-year to ₹40,829 crore, with gross advances growing to ₹18,340 crore, an increase of 21.3% from the previous year. ESAF’s distribution network expanded to 756 branches and 646 ATMs across 24 states and 2 Union Territories, along with 35 institutional Business Correspondents and 1,097 Customer Service Centers, enhancing its reach across India.

Expert Insight on ESAF’s Strategy

Analysts noted that ESAF’s growing focus on secured lending, combined with its proactive stance on provisioning, aligns with the bank’s strategy to reinforce its asset quality. CEO K. Paul Thomas remarked that the recent growth in CASA deposits, primarily driven by retail deposits comprising 92% of the total, is a testament to ESAF’s stable financial outlook. Thomas added that the bank’s expansion efforts focus on promoting financial inclusion and advancing digital banking solutions for an enhanced customer experience.

Asset Quality and Capital Adequacy

In terms of asset quality, ESAF achieved a marginal improvement in its Net Non-Performing Asset (NNPA) ratio, which fell from 3.22% in June 2024 to 2.98% by September. The Gross NPA stood at 6.98% of advances. The bank maintained a robust Capital Adequacy Ratio (CAR) of 23.2%, including Tier I capital at 19.6%, which is well above regulatory requirements. ESAF’s overall capital strength positions it well to support future growth initiatives and sustain a buffer against market volatility.

ESG Rating Reflects Commitment to Sustainable Banking

CareEdge recently assigned ESAF an ESG rating of 68.1, the highest in the sector, well above the industry average of 51.8. The rating underscores ESAF’s efforts in implementing environmentally and socially responsible banking practices. The bank’s ESG initiatives align with its mission to offer inclusive financial services for underserved communities, especially through products tailored to low- and middle-income groups.