K Paul Thomas, MD, CEO, ESAF SFB
ESAF Small Finance Bank (ESAF SFB) will cap share of gold loans in its overall advances at 35-40 per cent, while micro loans will form 30-35 per cent of overall loans, said MD & CEO K Paul Thomas. The bank does not intend to concentrate all its advances in one loan segment like it did in the past, when micro loans formed a third of overall advances. The bank’s focus on gold loans will continue till it builds its secured retail, agriculture and MSME loan book, he says. Excerpts:
Your portfolio mix is shifting from unsecured to secured loans. What is the strategy?
We have a strategy to grow our secured business, focusing on MSME, agri, and retail loans. Retail advances include vehicle loans, home loans, affordable housing and loan against property. We are not moving away from micro loans completely. We will continue to serve those segments and micro loans will form 30-35 per cent of our overall advances, while gold loans will form 35-40 per cent.
We are planning to set up 43 business centres to grow MSME and retail loans, and 25 have already been operationalised. These centres will have credit, business, operations and collection teams. Building a secured book will take time, so till then, gold focus will be there. We don’t want to have majority of our advances in gold segment.
Will you be able to increase market share in home loans given stiff competition on interest rates by PSU banks?
Even gold loans are very competitive, especially in the Southern region; PSU banks are very aggressive on gold loans. But it is the about customer service and relations that matter. We hold around 11.5 tonnes of gold as security as of December-end, one tonne higher than last year.
Stressed accounts have reduced in the micro loan business. Will the trend sustain?
In the broader industry, a lot of discipline has come due to new guidelines issued by Sa-Dhan. The new guardrails have helped improve asset quality. Monitoring of loans has improved and engagement has increased with customers. During Covid-19 period, we could not stay in touch with customers much. We are conducting field-level activities, financial literacy programmes, and medical camps.
The success of the microfinance industry was based on strong engagement with the local community. So, we are trying to bring that back. We have got dedicated community engagement teams that arrange various productive activities, helping lower delinquencies. Doubtful cases are not being sourced, which is why rejection rate has come down for us. Overall, our gross slippages in FY24 were around ₹950 crore, and net slippages were at ₹850 crore. In FY25, gross slippages increased to ₹1,870 and net slippage was at ₹1,620 crore. In 9MFY26, gross slippage is close to ₹970 crore and net slippages at ₹820 crore. Off late, slippages have reduced and we expect lower slippages in Q4 as well. Therefore, we are broadly reaching back to FY24 levels and credit cost will reduce drastically over the coming quarters, partially aided by gold loans.
What is holding ESAF back from applying for a universal bank license?
As of now we are not eligible. We don’t meet required bad loan ratios, and two annual years complete profitability parameters. We could consider after two years.
Published on February 17, 2026
