The company is a leading small finance bank known for its customer-centric approach and innovative financial solutions. In a significant move, it has recently approved the transfer of bad loans worth Rs. 733 crore to an asset reconstruction company at a steep 90% discount, aiming to clean up its balance sheet and strengthen financial health.
ESAF Small Finance Bank Limited’s stock, with a market capitalisation of Rs. 1,771.52 crores, rose to Rs. 34.59, hitting a high of up to 6.9 percent from its previous closing price of Rs. 32.36. However, the stock over the past year has given a negative return of 35.5 percent.
NPA Status
ESAF Small Finance Bank’s Board of Directors approved the sale of a pool of Non-Performing Assets (NPAs) and technically written-off loans totaling Rs. 735.18 crore to an Asset Reconstruction Company (ARC). This pool includes Rs. 362.43 crore worth of NPAs and Rs. 372.75 crore of technically written-off loans, with the bank already having provisioned 90.15% of the total.
Following the Swiss Challenge Method, the bank completed the transfer of this pool on June 30, 2025, for a consideration of Rs. 73.34 crore. The cut-off date for this portfolio was March 31, 2025. This move is part of ESAF SFB’s effort to clean up its balance sheet and improve asset quality.
Asset Quality – In-depth Analysis
ESAF Small Finance Bank’s asset quality trends indicate both challenges and resilience. The Gross NPA (GNPA) ratio remained elevated at 6.9% in Q4FY25, while Net NPA (NNPA) stood at 2.9%, unchanged from the previous quarter. This means a considerable portion of loans remain non-performing even after provisioning.
However, the bank improved its Provision Coverage Ratio (PCR) to 80.5%, signaling stronger buffers against potential loan losses. Over the past year, ESAF added ₹427.2 crore in fresh NPAs during Q4FY25, but also made significant reductions through recoveries, upgrades, and write-offs totaling nearly ₹410 crore. The Net NPA value rose from ₹520.5 crore in Q3FY25 to ₹539.7 crore in Q4FY25, indicating marginal deterioration.
In terms of operational indicators, the Credit Cost in Q4FY25 stood at 7.5%, which reflects the provisions made during the quarter relative to average advances—still high but lower than the peak of 9.3% in Q3FY25. Net slippages came down to ₹362 crore from ₹445 crore in the previous quarter, hinting at early signs of stabilization. Notably, over ₹956 crore of NPAs are concentrated in just 5 states, including Kerala and Tamil Nadu, with Kerala alone accounting for a significant portion. The high exposure in a few regions poses geographic concentration risk. Overall, while asset quality pressure remains, the increasing PCR and reduction in net slippages are cautious positives suggesting that the bank is actively managing stress in its loan book.
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Profitability Metrics
The profitability metrics of ESAF Small Finance Bank for Q4FY25 reflect a continued decline in core earnings. Net Interest Income fell to Rs. 436 crore, registering a 10.4 percent decline quarter-on-quarter from Rs. 487 crore and a 26 percent drop year-on-year from Rs. 591 crore, indicating sustained pressure on interest margins. Pre-Provision Operating Profit dropped sharply to Rs. 91 crore, down 28 percent from the previous quarter’s Rs. 127 crore and 68 percent lower than Rs. 285 crore in the same quarter last year, suggesting rising operating costs or weaker income efficiency.
Non-Interest Income showed some recovery, rising to Rs. 141 crore, up 26 percent from Rs. 112 crore in the previous quarter, though still 6 percent lower compared to Rs. 150 crore in Q4FY24. Despite this improvement, the bank reported a net loss of Rs. 183 crore in Q4FY25. This was a slight improvement from the loss of Rs. 211 crore in Q3FY25, marking a 13 percent reduction, but remained close to the Rs. 190 crore loss in Q2FY25. The persistent losses highlight ongoing financial stress, likely driven by asset quality issues and elevated provisioning.
Written By Fazal Ul Vahab C H
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