ESAF Small Finance Bank is sharpening its focus on the emerging household (EH) loans segment, positioning it as the next major growth driver as customers transition from financial inclusion to mainstream retail banking.
The bank believes the segment, comprising individuals, self-help groups (SHGs), small entrepreneurs and farmer interest groups (FIGs), will evolve into one of its largest customer franchises by leveraging its extensive rural and semi-urban network.
Speaking during the bank’s Q1 FY27 earnings call, Managing Director and CEO, K. Paul Thomas said emerging household customers have already demonstrated repayment discipline and are witnessing rising income levels, making them ideal candidates for a broader suite of banking products.
“These customers are graduating from financial inclusion towards mainstream retail banking. By serving them through a wider range of banking products, we deepen customer relationships while improving portfolio quality and lifetime customer value,” Thomas said.
Segment grows 185% year-on-year
The bank’s emerging household loan portfolio recorded a robust 185% year-on-year growth and 14% sequential growth, contributing 32% of total gross advances during the quarter.
The portfolio caters to customers with annual incomes ranging between ₹3 lakh and ₹15 lakh, while the maximum loan ticket size is capped at ₹10 lakh.
The segment has been classified into four categories—individuals, SHGs, enterprises and farmer interest groups. While unsecured lending is restricted to individual borrowers, all other loans in the segment are backed by collateral, helping improve portfolio quality.
Diversification strategy gathers pace
Thomas said ESAF has adopted a calibrated approach to diversify beyond traditional microfinance by offering a wider range of banking products to customers whose financial needs have evolved.
“Our objective is no longer to pursue growth through a single product or customer segment. We are building a well-diversified retail franchise where secured lending, emerging households, microfinance, deposits and digital capabilities complement each other. This creates a more resilient balance sheet across economic cycles,” he said.
The bank has also strengthened its underwriting standards, collection mechanisms, liability franchise and technology platform, making the recent improvement in financial performance structural rather than cyclical, he added.
MARG strategy boosts secured lending
ESAF said its MARG strategy, focused on Mortgage, Agriculture, Retail and Gold lending, continues to drive portfolio diversification.
The bank reported strong growth across its gold, agriculture, vehicle and mortgage loan portfolios, all of which have recorded lower delinquency levels and contributed to improving overall asset quality.
Positive outlook
Thomas said the first quarter of FY27 marked a positive start to the year, with the microfinance industry also showing signs of recovery after facing asset quality challenges over the past two years.
He said the bank is now well positioned to leverage its extensive rural and semi-urban branch network to expand both its deposit base and lending business, while maintaining sustainable profitability.
“Our strategies are focused on creating a stable, diversified and resilient asset base supported by disciplined execution, prudent risk management, strong governance, investments in technology and operational efficiency. This will enable us to serve a wider customer base and further improve our financial performance in the coming quarters,” he said.