ESAF Small Finance Bank Limited — Investor Meet, 19-11-2024: Analysts/Institutional Investor Meet/Con. Call Updates

**Financial Performance:** ESAF Small Finance Bank reported a gross loan book increase to ₹19,216 crore in Q2 FY25, a 10% YoY rise. Disbursements reached ₹4,058 crore, reflecting a 21.3% growth compared to ₹3,345 crore in Q2 FY24. CASA deposits jumped 69.3% to ₹5,319 crore, contributing to a CASA ratio of 24.6%. However, net interest income (NII) fell to ₹540 crore from ₹588 crore, primarily due to a shift from unsecured to secured lending and slippages leading to an interest rate reversal of ₹93 crore. The bank posted a loss of ₹190 crore compared to a profit of ₹63 crore previously, with a gross NPA ratio of 6.98%.

**Future Outlook and Growth Drivers:** Management highlighted a focus on secured lending, aiming for a balanced loan book with secured loans comprising 45% by year-end. The bank emphasizes increasing gold loans, which saw a 59% growth year-on-year, and enhancing agricultural and mobility loan portfolios.

**Order Book and Operational Updates:** The bank's operational efficiency is improving with its expansion to 756 banking outlets, reflecting a drive to meet the needs of underserved communities. The transition of approximately 5,000 employees from business correspondents to direct employment is expected to enhance service delivery and operational stability.

**Analyst Q&A Insights:** Analysts sought clarity on NII decline, with management acknowledging that changes in asset mix and high slippages were influential. The bank anticipates elevated provisions in H2 FY25 to address existing credit risks. Discussions included the impact of the absorbed business correspondent staff on operational costs and efficiency, suggesting improved asset management post-transition.

**Strategic Focus Areas:** ESAF is placing a strategic emphasis on growing its secured loan portfolio while reducing reliance on microfinance. The bank is implementing tighter credit controls to address rising NPAs related to microfinance.

**Investor Insight:** The current financial and operational strategies suggest a cautious but potentially stable growth trajectory in a challenging environment. The focus on secured lending and improving asset quality may create opportunities for long-term recovery, suggesting a 'hold' perspective amid existing volatility in the microfinance sector.