ESAF Small Finance Bank ($ESAFSFB)

Ladies and gentlemen, good day, and welcome to ESAF Small Finance Bank Limited Q4 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Dr. K. Paul Thomas, MD and CEO of ESAF Small Finance Bank. Thank you, and over to you, sir.

Thank you. Thank you. Good afternoon. and welcome to ESAF Small Finance Bank's Q4 FY '26 earnings call. On behalf of the Board and the management team, I thank you for joining us today. and for your continued interest in ESAF small finance bank. Joining me today are man Mr. George K. John, Executive Director; and Mr. Gireesh C.P. EVP and CFO. At ESAF Small Finance Bank, our strategic focus remains on building a granular diversified and increasing secured lending portfolio, which we believe is essential for improving asset quality earnings stability and long-term scalability. At the same time, our commitment to finance intuition and serving the underserved segments continues to be a core differentiator of our funds. As outlined in our previous call, our Mark strategy, MSME, agriculture, retail and gold loans is central to this transition. This approach is enabling us to diversify risk, improve portfolio quality and reduce dependence on unsecured segment. During the year, these segments have delivered healthy and broad-based growth aligned with our strategic priorities. Our focus on secured lending disciplined underwriting and calibrated cost management is now beginning to flat in our performance. In Q4 FY '26, we have seen sequential improvement across key financial parameters including asset quality and profitability metrics, indicating early outcomes of the strategic shift underway. On the liability and customer side, we continue to deepen our person across all semi-urban and urban markets. During the year, we closed a milestone of 10 million customers with a strong representation of women we see this as a structural strength of our model, contributing to portfolio affiliates and long-term fundage value. From a sector perspective, the microfinance industry is showing stable strings stabilization after a period of stars. Collection efficiencies have improved and operating conditions are gradually normalize supported by better borrower discipline better credit underwriting and easing delinquencies. While external factors, including geopolitical developments remain in watch point, we believe this sector is now on a more stable trajectory looking ahead, our priorities remain clearly defined, increasing the share of secured assets, improving asset quality, strengthening profitability, driving operating efficiency and improve customer experience. This will be supported by continued investments in technology, distribution and analytics less decision-making. With that, I now invite our Executive Director, Mr. George K. John to take you through the performance highlights.

Thank you, Paul sir, and good afternoon, everyone. We continue to build on the momentum from the previous quarter with a clear focus on sustainable growth and fast discipline. After the sale, we have seen sequential improvements across key operating and financial metrics, including profitability, asset quality, motors in cages, improved operation efficiency and standing return ratios. As of 31st March 2026, our bank business stood at INR 48,276 crores string a 5% year-on-year growth contactor INR 40.55 crores last year. Gross advances grew by 9 percentage while deposits increased by 1 misreporting balanced growth across both sides of the basic. On Latin side, retail deposit is strong at cities of on deposits. compared to 93% last year. Further, 88% of bank deposits carries a non-prepayment cost, providing taboo funding basis. our LCR, the liquidity coverage ratio stood at 13.3% as of 31st March 16, indicating a comfortable liquidity position. This posed during Q4 effort at grew by 88% both plates Y-o-Y and reminded broadly stable second. For the full year, we retired our highest disbursement of INR 4,530 crores, presenting 13% growth or 15%. This growth was world-best portfolio contained to be the key driver, growing by 1 purpose during the year. Importantly, intercostal deposits disbursements work towards secured assets in line with our static priorities. On the opens, our macrophage Group in a server at INR 8,340 crores as of March 2026. The secured loan mix improved to 61% compared to 63% last year, driven by the continued scaling of Maori. Overall, our advances grew by port year-on-year, Pilon and mobile loans is delivered to growth of all me. The ongoing portfolio transition is continuing asset quality, reducing earnings volatility and supporting sustainable growth given the little lower and profiling segment. We have also seen a decline in cuttage, on a sequential basis, supported by improved cost efficiencies and item. Notably, there was no rate sales for tomato during this quarter, reflecting underlying portfolio specialty. We remain on track to achieve our stated target of 70% secured assets by March 2025. Our distribution network continues to be a cisternal for banking outlets, and the ATMs custom service centers and Dentistion business performance, F-14 until you interface enabling new customer reach and engagement. On the mercaptans portfolio, we're adopting a contracted risk over approach aligns with the improving operating environment. Key initiatives insoles tendering field engine to Santam and Blue process announcement, aseasource of higher quality customers, structured graduation to enter lending and focused associates enduring cost in trends and discipline and underwriting, we believe that particular on a stable footing. On technology front, itself stood out room most men start the initiative the conformation program become us laying a strong and as well foundational core economy infrastructure and business applications. We are making steady progress on the sale, and we expect net to become capital before this collar. That will be for sites it will bring in the much annuity to quickly adopt the emerging markets made enhance operates beet governance, into risk management, amended customer experience and so our progress in dividend transformation as we recognized through multiple industry about inverting the 2 transformers in clam as a Itanchange program and the best refinancing visa from the Indian brand acquisition. Overall, the improvement in performance in the second half of the year has been driven by tighter underwriting, can base growth, improved collusions, cost discipline under better portfolio mix. We remain focused on considering this momentum through disciplined execution of targets in the coming years. With that, I now invite our EVP and CFO, Mr. Gireesh C.P. to take you through the detailed performance.

Thank you, sir. Good afternoon, everyone and thank you for joining us today. Let me take you through the key financial highlights of Q4 and 26. As of 31 March 2026, total deposits could at INR 2,850 crores, registering a Y-o-Y growth of 11 percentage over INR 23,276 crores. This set credit deposit ratio of 83.5%. Retail deposits increased to INR 23,670 crores growing 9 percentage Y-o-Y and now constitute 92 percentage of the total deposits, reflecting a stable and granular funding base. CASA balances grew to INR 6,181 crores, up by 7 percentage Y-o-Y, with a CASA ratio of 23.9%. We expect CASA traction to gradually improve supported by continued focus on customer acquisition, service rate and branch rate growth. Disbursements for the quarter stood at INR 1,926 crores, reflecting a strong 88 percentage Y-o-Y growth secured lending cost site 78% of the disbursement, marking the sixth consecutive quarter with over 75 percentage share in line with our strategy of improving portfolio quality. Gross advances increased to INR 24,426 crores from INR 18,779 crores a year ago, up 19 percentage Y-o-Y. The sequel portfolio, largely driven by Mark segment grew 47% Y-o-Y, while the microfinance portfolio remains stable in absolute terms with a share reducing some 39% base from 47% last year. The net interest income for the quarter was INR 518 crores compared to INR 432 crores in the previous quarter. Net interest margin improved to 7.3 percentage from 6.6 percentage supported by lower cost of funds and reduction in fresh lavages. Repositioning operating profit stood at INR 241 crores, up 166 percentage on Y-o-Y basis driven by business growth and higher fee income. Other income grew by 39 percentage Y-o-Y during the quarter. Profit after tax for Q4 FY '26 stood at INR 24 crores compared to INR 7 crores in Q3. ROA and ROE improved to 0.1 percentage and 0.3%, respectively, for the quarter. These are known annualized numbers. On other quality, GNPA declined to 5.4% from 6.9 percentage and 18% to 1.8% from 3 percentage on a Y-o-Y basis. Slippages reduced significantly to INR 106 crores compared to INR 427 crores in the last year fourth quarter. This improvement reflects the shift in portfolio needs, better collection efficiency and disciplined advertising, along with contributions from NPA resolution. Our slippage ratio on a gross basis reduced from 10.47% for FY '25 to 6.47 percentage on FY '26. If you take for the last 2 quarters, it is 0.54 percentage on annualized basis for Q4 FY '26. It also showed improvement from quarter on quarterly basis. Credit costs came down from 6.72 percentage in FY '27, FY '25 to 74% in FY '26 was reductivity, a year of 2 halves, while the first half was impacted by a challenging operating environment the second half saw a clear improvement performance driven by portfolio rebalancing towards better asset quality, improved operating efficiency and cost discipline. With a stabilizing external environment and continued execution of our strategic priorities, we expect further improvement in asset quality, margins and return ratios while maintaining a disciplined and sustainable growth trajectory. Thank you. And the floor is open for question and answers.

[Operator Instructions] The first question is from the line of Deepak Poddar from Sapphire Capital.

So just wanted to understand, first up now, given the portfolio mix is more towards secured, currently, it is 60%, and we are targeting 80%. So what sort of normalized credit cost we are expecting with such kind of portfolio and by when?

Small correction on the secure book, we are going to riding up to 30 percentage not 20%, 70% 30%. We are planning to. And credit costs going forward, if you see the credit cost for the current quarter alone, it is 1.08 and this includes this has some backlog of provisioning on the stock of NPA. So steady-state basis, 2 percentage credit costs is an expected kind of stuff going forward.

Okay. And by when we can achieve that?

This year also, there will be some backlog on provisioning so from FY '28, you can expect.

Okay. Okay. Understood. So some backlog on provisioning will continue in FY '27. So a 2% kind of a credit cost steady state, we can see by FY '28.

Yes.

Okay. And sir, anything on the growth and ROI thing on FY '27. I mean, any outlook you want to share, that would be very helpful.

Is a futuristic statement, and I'm unable to give you at this moment. But 1 thing which I can tell is that the growth at and that the asset quality programs are almost over. And going forward, we will be on a city kind of growth. That is what is expected.

Okay. So what you're trying to say growth is back, asset quality problem is over. So I believe we will see a much better comments than what we would have been seeing, right?

Also, we have we have built up over a period of last 9 years, we built a great Francis, spread across 26 states. So we have 804 branches. We have 32 institutional business correspondent partners. So they are operating 1,000-plus customer service centers so last couple 2 years because of the asset quality issues and challenges, we were actually not able to fully leverage on the network we built so going forward, we are seeing a great opportunity to leverage on the network we built and mostly the nth rural and semiurban areas of India. So the products we have developed are relevant for these markets, and that's where you will I hope you got my point that how we are positioning our selves.

Correct. And given this portfolio mix more was secured, now the credit cost, you mentioned steady state to be 2%. So what sort of steady-state ROA, I mean, with this current the mark focus that we have.

We are planning to have an ROA of to percentage.

And that to I mean, we will target to achieve by FY '28.

Yes. that being the traction in another next 2 quarters, you can see that the trend you will see.

Okay. Next 2 quarters, maybe a traction we might expect in ROA front as well?

Yes.

[Operator Instructions] The next question is from the line of Amit Mehendale from RoboCapital.

Sir, my first question is on the EM growth. I think this year have grown by about 19% of so going forward, I mean, 1 can expect maybe 18%, 20%, 22% because they're coming out of a new period like has been very challenging. And now once the credit cost issue are behind us, we should be able to see a healthy growth rate, maybe 2%? Or I mean, what do you think I mean, you may not give me a number, but broadly, I think the trajectory should continue.

Yes. This year, we have done from IDC also is there, we have done offloaded books to the INR 650 crores it is not there in the growth numbers. And on a steady-state basis, 20 to 25 percentage is the growth which we are looking.

All right. Great. And sir, any guidance on cost income ratio going forward?

Cost income ratio, somewhere around 65%, plus or minus 2 percentage with the guidance which we would like to.

And my last question is on NII. Now that our secured book is growing faster than the unsecured book and will have a larger proportion in the loan book. NII grow in tandem with the low growth, like suppose the loan book grows most say 20%. Do you think NII should trail the loan book growth, right right?

Yes. I almost from a steady state basis in our face. So somewhere around 7 percentage plus or minus a percentage will be the in so.

[Operator Instructions]

If there is no other question

As there are no further questions, I now hand the conference over to the management for closing comments.

Thank you, and over to you, sir. Thank you. Thank you. So thank you so much for participating in the call. So we believe we have taken the right strategic steps and hopefully supported by a positive machine. So we can expect to see continued growth in the coming years. I would like to thank all the participants, investors and analysts for taking the time out for this conference call today. In case you have any follow-up questions or inquiries. You can always reach out to our Investor Relations team. Thank you very much. Thank you. Thank you all.

Thank you, members of the management. Thank you, sir. Ladies and gentlemen, on behalf of ESAF Small Finance Bank Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your. Thank you.