Aim to cut share of unsecured loans from 47% to 30% in 3-4 yrs

ESAF Small Finance Bank is recalibrating its lending strategy to focus on secured, retail asset-led growth, while gradually reducing its exposure to the microfinance segment.

- K Paul Thomas, MD & CEO, ESAF Small Finance Bank

MD & CEO Paul Thomas speaks with Narayanan V about the rationale behind this strategic pivot, the bank's diversification efforts, and its outlook for credit and deposit growth in FY26.

Excerpts:

Your loan growth was almost flat in FY25. What led to the slowdown?

Our loan book remained largely stable at ₹19,643 crore as of Q4FY25, compared to ₹19,659 crore a year earlier. This muted growth was mainly due to a sharp reduction in our microfinance portfolio, which continues to face stress. The microfinance book declined to ₹9,705 crore in Q4FY25 from ₹13,764 crore in Q4FY24. The new guardrails introduced by the microfinance self-regulatory organisation (SRO) significantly reduced the pool of eligible borrowers. In several cases, we couldn't extend fresh loans even to existing customers. As a result, disbursements in the microfinance segment dropped to ₹1,044 crore in Q4FY25 from ₹3,076 crore a year ago.

Consequently, the share of microloans in our overall portfolio declined from 70% to 49% year-on-year.