KOCHI: ESAF Small Finance Bank – ESAF Bank, grappling with the overhang of a stressed microloan portfolio, has initiated a major clean-up by deciding to sell a pool of bad loans worth Rs735.18 crore to an asset reconstruction company (ARC).
The decision, approved by the bank’s board on Wednesday, includes Rs362.43 crore in non-performing assets (NPAs) and Rs372.75 crore in technically written-off accounts.
ESAF Bank said it holds provisions covering 90.15 per cent of the pool. The ARC buyer and terms of sale have not yet been disclosed.
The move comes even as the bank is reeling under a mountain of bad loans, largely stemming from its once high-flying microfinance portfolio.
As per figures reported in businessbenchmark.news, ESAF’s gross NPAs stood at Rs1,290.56 crore as of March 31, 2025 – a staggering 66 per cent of its net worth of Rs1,945 crore.
“When gross NPAs approach two-thirds of net worth, it suggests the capital buffer may not be enough to absorb future losses,” a Mumbai-based analyst told the portal, underlining growing concerns over the bank’s credit quality.
To tackle the situation, ESAF has been aggressively reworking its lending strategy. Of its Rs19,643 crore total advances, secured retail assets now account for 52 per cent, up sharply from 29 per cent a year ago. This includes gold loans, MSME finance and affordable housing loans – a clear pivot away from risky microloans.
Gold shines in recovery strategy
Gold loans, in particular, have emerged as a lifeline, doubling year-on-year to cross Rs6,000 crore. CEO & MD Paul K Thomas said secured lending, which offers a 10-percentage-point yield advantage over microloans, would be the core of ESAF’s turnaround strategy. The bank aims to stabilise and return to profitability in the second half of FY26.
In Q4 FY25, the bank reported a net loss of Rs183.19 crore, taking the full-year loss to Rs521.39 crore. Net NPAs stood at Rs539.64 crore, or 27.75 per cent of net worth. However, the provision coverage ratio remained healthy at 80.5 per cent.
In line with its balance sheet revamp, ESAF also wrote off Rs345 crore worth of stressed assets during the year. Meanwhile, interest income showed signs of revival with net interest income growing from Rs436 crore to Rs491 crore year-on-year. The CASA ratio was reported at 24.8 per cent.
While ESAF’s stock remains far below its IPO price of Rs60, it has staged a mild recovery – rising from a low of Rs24.31 to close at Rs33.50 on the NSE recently. On Wednesday, shares on BSE ended at Rs31, marginally up by 0.23 per cent.
As Kerala continues to account for 36 per cent of the bank’s loan book, ESAF’s ability to sustain momentum in secured lending and pare legacy risks will be closely watched.
