ESAF Small Finance Bank posts strong secured asset growth despite loss in Q3 FY25

ESAF Small Finance Bank has reported strong growth in secured assets and a significant surge in CASA (Current Account Savings Account) deposits in its financial results for the third quarter and nine months ended December 31, 2024. Despite facing a net loss of ₹211 crore during the quarter, the bank’s financial performance reflects a robust expansion strategy focused on secured asset growth and financial stability.

The bank’s unaudited financial results highlight its resilience amid challenging market conditions, with secured loans, gold loans, and CASA deposits showing impressive year-on-year growth. The financial performance update underscores ESAF Small Finance Bank’s strategic focus on strengthening its balance sheet through proactive provisioning and diversification of its lending portfolio.

What is driving ESAF Small Finance Bank’s secured asset growth?

One of the most notable aspects of ESAF Small Finance Bank’s financial performance is the sharp increase in secured asset growth. The bank’s secured loan disbursements surged by 172% year-on-year, reaching ₹4,226 crore in the nine months of FY25, compared to ₹1,554 crore during the same period in the previous fiscal year. This growth has significantly expanded the secured asset portfolio, which now accounts for 43.35% of the bank’s total assets, up from 27.91% in FY24.

The surge in secured asset growth has been driven by the bank’s strategic focus on risk diversification and asset quality improvement. By increasing the proportion of secured loans in its portfolio, ESAF Small Finance Bank aims to mitigate the risks associated with unsecured lending, particularly in a volatile economic environment. The bank’s emphasis on gold loans has also contributed to this growth, with gold loan disbursements rising by 82% year-on-year to ₹4,576 crore in the nine months of FY25, compared to ₹2,513 crore in the same period last year.

This secured asset growth not only strengthens the bank’s balance sheet but also provides a stable foundation for future business expansion. The bank’s gross advances grew by 6.6% year-on-year to ₹18,291 crore, while the total loan book increased by 5.6% to ₹19,161 crore, reflecting consistent growth across its lending operations.

How is the CASA deposit surge impacting ESAF Small Finance Bank’s financial stability?

In addition to secured asset growth, ESAF Small Finance Bank has experienced a remarkable surge in CASA deposits, which is a critical indicator of financial stability for any bank. The bank’s CASA deposits grew by 57% year-on-year, reaching ₹5,592 crore in Q3 FY25, up from ₹3,562 crore in Q3 FY24. This surge has significantly improved the bank’s CASA ratio, which rose to 24.95% from 18.89% during the same period.

The CASA deposit surge is a testament to the bank’s successful deposit mobilisation strategies and its growing customer base. With 92% of its deposits coming from retail customers, ESAF Small Finance Bank has built a strong and stable deposit base that supports its lending activities and reduces its reliance on high-cost borrowings. The growth in CASA deposits also helps the bank maintain a lower cost of funds, which stood at 7.64% for Q3 FY25, contributing to improved profitability in the long term.

The bank’s total deposits grew by 18.9% year-on-year to ₹22,415 crore, reflecting strong customer trust and confidence in its financial products and services. This growth in deposits, coupled with the surge in CASA, enhances the bank’s liquidity position and provides a solid foundation for future growth.

What challenges are affecting ESAF Small Finance Bank’s profitability?

Despite the strong growth in secured assets and CASA deposits, ESAF Small Finance Bank reported a net loss of ₹211 crore in Q3 FY25. This loss was primarily driven by higher provisions for stressed assets, which amounted to ₹410 crore during the quarter. The bank’s proactive approach to provisioning aims to strengthen its balance sheet and improve asset quality in the face of potential credit risks.

The bank’s provision coverage ratio (PCR) improved to 78.58% as of December 31, 2024, up from 73.70% in the previous quarter, reflecting its commitment to maintaining a strong buffer against non-performing assets (NPAs). The gross NPA ratio stood at 6.96% of advances, while the net NPA ratio marginally improved to 2.97%, compared to 2.98% in the preceding quarter.

According to K. Paul Thomas, Managing Director and CEO of ESAF Small Finance Bank, the bank remains confident in its ability to improve asset quality over the next one to two quarters. He highlighted the bank’s focus on responsible lending practices, risk diversification, and technological advancements as key drivers for future growth. “Our commitment to responsible lending and diversification to mitigate concentration risks will support our efforts to enhance asset quality. Additionally, our focus on technology will improve operational efficiency and elevate the customer experience,” he stated.

What is the future outlook for ESAF Small Finance Bank?

Looking ahead, ESAF Small Finance Bank is well-positioned to capitalise on its strong growth momentum in secured assets and CASA deposits. The bank’s total business expanded by 12.3% year-on-year to ₹41,576 crore, supported by a growing customer base that reached 91.9 lakh as of December 2024. The bank added 8.18 lakh new customers in the nine months of FY25, reflecting its expanding reach across urban and rural markets.

The bank’s capital to risk-weighted assets ratio (CRAR) remained robust at 22.70%, with Tier I capital at 18.68%, providing a strong capital base to support future growth initiatives. The expansion of its branch network to 770 branches and 669 ATMs across 24 states and two union territories further strengthens its presence in key markets.

As ESAF Small Finance Bank navigates the evolving banking landscape, its strategic focus on secured asset growth, CASA deposit surge, and prudent risk management practices positions it well for sustainable growth in the coming quarters. The bank’s resilience amid economic challenges underscores its commitment to financial inclusion, responsible banking, and long-term value creation for stakeholders.