It is with immense pleasure that I present to you the Annual Report of ESAF Small Finance Bank. As we celebrate the milestone of our successful listing, I take the opportunity to extend my heartfelt gratitude to all our esteemed stakeholders—our loyal customers, shareholders, investors, distinguished Board of Directors, supportive bankers, committed employees, dedicated vendors, and partners—each of whom has played a pivotal role in our extraordinary journey. Your support and dedication have been instrumental in our achievements so far, and for that, we are profoundly grateful.

Our strategy is founded on the principles of financial inclusion and sustainability, with the objective of empowering individuals and communities, especially in rural and semi-urban areas. We have made a positive difference in the lives of millions by offering access to banking services, encouraging entrepreneurship, and driving economic development.

At the core of our approach are the pillars of ‘People, Planet, and Prosperity’. By harnessing advanced technology and innovative digital platforms, we provide convenient, secure, and personalised banking services tailored to meet the diverse needs of our customers. Our strategy is deeply rooted in robust corporate governance, comprehensive risk management, and stringent compliance, ensuring ethical and transparent operations that nurture trust among our stakeholders. Sustainability remains a central focus, as we drive initiatives from green banking to community development projects, reflecting our commitment to environmental and social responsibility. Our goal is to create a meaningful and lasting impact on society and the environment, thereby creating a ‘Solid Strategy for a Joyful Tomorrow’.

In 2023-24, India’s economy showcased extraordinary growth, surpassing earlier projections with an impressive growth rate of 7.6%. The strength and dynamism of India’s economy remain indisputable, supported by a combination of stringent policy and regulatory measures and the steady revival of the private sector. Poised on the cusp of further economic advancement, the country is driven forward by substantial investments in emerging sectors, continued Government spending, and significant efficiency gains from enhanced digitalisation and infrastructure upgrades.

The Government’s focus on inclusive development is evident in its persistent efforts to extend its reach to every corner of the country, enhance infrastructure, and stimulate investments to unlock untapped potential. By championing sustainable and green growth, leveraging the dynamic energy of its youth, and fortifying the financial sector, these initiatives are set to serve as catalysts for propelling India towards a promising and prosperous future.

The Government’s focus on inclusive development is evident in its persistent efforts to extend its reach to every corner of the country, enhance infrastructure, and stimulate investments to unlock untapped potential.

Acknowledging the MSME sector’s pivotal role as a significant employment generator for low-skilled and semi-skilled workers, the Indian Government has astutely identified key sectors poised to capitalise on the nation’s competitive advantages in resources and skills. This strategic focus includes harnessing local market opportunities and advancing up the global manufacturing value chain. Initiatives such as the Production Linked Incentive (PLI) schemes, tax incentives, ease of business reforms, national infrastructure projects, and the national logistics plan are carefully designed to revitalise manufacturing, optimise logistics, and leverage favourable external factors.

The Indian banking sector is experiencing a robust recovery, driven by a wave of transformative Government reforms. With a keen focus on enhancing credit discipline, promoting responsible lending practices, and improving governance standards, these measures have not only boosted the profitability of India’s banking system but have also ensured its sustained growth and robust capitalisation.

A resilient financial sector is indispensable for achieving ambitious national objectives. The RBI’s proactive stance to curb inflation has led to a significant phenomenon: credit expansion outpacing deposit growth. Retail credit, particularly personal loans, has experienced substantial growth, now constituting one-third of all loans, marking a significant rise from less than one-fifth a decade ago.

The emergence of small finance banks underlines the Government’s commitment to promoting financial inclusion nationwide. These banks have played a crucial role in extending access to a wide range of financial products and services for segments of the population that were previously underserved or excluded. Specialising in key areas such as Small Business Loans (SBL), MSME Finance, Vehicle Finance, Microfinance, and Affordable Housing Loans, small finance banks have carved out a niche for themselves as providers of financial solutions tailored to the unique needs of the low-income, self-employed sector. In doing so, these banks are not only facilitating financial empowerment but also driving socio-economic progress across communities.

The Indian economy presents significant untapped potential, offering a substantial opportunity for small finance banks to flourish. With the overall MSME credit gap standing at ₹ 92 trillion, the gap in small-ticket loans is estimated at ₹ 22 trillion. Credit flow to MSMEs has continued to expand, driven by technology and data-analytics-oriented lending practices. This growth is inclusive, with notable increases seen among semi-urban and rural MSMEs. The availability of enriched and timely credit data, along with the rapid deployment of digital lending infrastructure, has played a significant role in bolstering this confidence.

At ESAF Small Finance Bank, we are passionately committed to uplifting the low and middle-income segments, actively contributing to livelihoods, and fostering economic development. With a rich legacy in the Indian BFSI space, we are focused on empowering, inclusive, and transformative financial interactions, particularly for the unserved and underserved. Our dedication extends beyond the conventional realms of banking. Alongside a comprehensive suite of traditional banking services, we offer safe deposit lockers, foreign currency exchange, access to the Bharat Bill Payment System, money transfer services, and Aadhaar Seva Kendra services. Additionally, we take pride in enriching the customer experience by extending a diverse range of offerings, including the distribution of third-party life and non-life general insurance policies, as well as government pension products.

At the heart of our goal lies a profound belief in the dreams and aspirations of our customers. We envision ourselves not just as mere service providers but as agents of hope and catalysts for their success.

As a socially responsible financial institution and one of India’s leading small finance banks, we remain committed to making a positive impact on millions of people at the bottom of the economic pyramid. Despite being a relatively young bank, we have achieved significant milestones in a short span of time by extending banking services to previously overlooked rural communities throughout India. Our outreach spans a myriad of sectors, including education, healthcare, women’s empowerment, livelihood development, farmer support, and skill enhancement. These efforts have yielded tangible improvements in the lives of our cherished customers, nurturing not just growth but sustainable transformation.

Our commitment to empowering the underprivileged and promoting financial inclusion has enabled us to serve 8.37 million customers across 23 states and 2 union territories in India through our extensive network of 753 banking outlets. To our exceptional team, I extend my heartfelt gratitude for their consistent dedication and indomitable spirit. Guided by robust governance standards, we have built a reputation for professionalism and excellence, setting a high bar for our industry peers. Even amid the turbulence of challenging times, we have remained focused on meeting the evolving needs of our customers, driving operational efficiency, and fortifying our resilience.

At the heart of our goal lies a profound belief in the dreams and aspirations of our customers. We envision ourselves not just as mere service providers but as agents of hope and catalysts for their success. This vision was clearly articulated by our Founder, and our organisation works tirelessly to fulfil this vision every day. Our objective is to empower our customers by providing innovative products and services crafted to address their unique needs. Furthermore, we are committed to offering consistent guidance and support, standing firmly by their side as dedicated companions in our customers’ quest to fulfil their highest aspirations.

To ensure sustained growth, we are increasing our focus on leveraging agency banking to expand our reach and offer services to underserved communities. Recognising the importance of digital transformation, we make substantial investments in technology infrastructure and digital tools to enhance both our operations and the customer experience.

We are embracing new technologies like AI, and machine learning to streamline processes and personalise services. However, we are also vigilant about potential risks, particularly cyber threats. To strengthen our defences, we are channelling significant resources into bolstering our cybersecurity measures. Moreover, we are forging strategic partnerships with fintech companies to access cutting-edge technologies and develop innovative products. This collaborative approach empowers us to stay agile in meeting the evolving needs of our customers while consistently improving the quality of our services.

Investing in our human capital is another key focus. Through training and development, we strive to foster a culture of excellence, increase productivity, and drive growth. Despite the promising aspects on the horizon, we remain cognisant of potential risks such as global economic uncertainty and volatility in commodity prices. In response, we remain vigilant and proactive in our approach to effectively address these challenges

Our Bank’s approach to sustainable development, known as the triple bottom line approach, focusses on three key elements: People, Planet, and Prosperity. These interconnected elements are crucial for ensuring the long-term sustainability of the business. Our commitment to People involves considering the impact of our operations on employees, customers, and the communities we serve. We prioritise ethical practices, diversity, and inclusion, aiming to create a positive societal impact.

The Planet aspect of our approach centres on environmental sustainability. We take significant steps to reduce our carbon footprint and promote sustainable practices. We engage in Green Financing, offering products like Go Green Vehicle Loans and Solar Energy Loans, aligning with the United Nations’ Sustainable Development Goals. Prosperity is essential for sustainability, guaranteeing the long-term economic viability of both the business and the communities our Bank serves. The Bank focusses on financial inclusion by providing banking services to underserved and underprivileged communities, contributing to their economic growth.

The banking sector is evolving with an increasing focus on Environmental, Social, and Governance (ESG) practices. This trend is shaping banks’ operations and influencing investors’ decisions, making ESG a critical factor for sustainable banking. We actively prioritise ESG in our banking operations. We have developed an ESG Roadmap for 2023-27 and are diligently working towards achieving our goals. Our focus includes offering sustainable finance options to our customers, such as the Hrudaya Fixed Deposit, Green Wheels, and Clean Energy Loans, to promote sustainability in banking and encourage environmentally friendly choices.

We integrate ESG standards and objectives into our policies and priorities, demonstrating our commitment to ESG consciousness. By exploring new avenues aligned with our environmental, social, and governance values, we aim to tap into the revenue potential of our ESG principles. To further strengthen our commitment, we are preparing to assess and rate our customers based on their ESG performance, ensuring their eligibility for green financing and other ESG-related incentives. Additionally, we are aligning with global standards such as the Business Responsibility and Sustainability Report and Net Zero commitments, adapting our culture and organisational structure to accommodate the evolving ESG landscape.

These initiatives reflect our proactive approach to addressing ESG-related matters and our commitment to promoting sustainability in the Indian banking industry.

As we look ahead to the future, our primary objectives revolve around maintaining and enhancing our asset quality while pursuing growth in line with industry standards. Quality assurance is a key focus at all levels of our operations, and we remain dedicated to upholding the core values that define our culture and guide our actions.

We recognise the favourable growth rate demonstrated by the economy, coupled with the Government’s reform agenda, which supports sustained growth. Therefore, we are committed to supporting our customers’ aspirations and contributing to India’s economic development.

Before concluding, I would like to express our heartfelt gratitude to all our stakeholders, including the shareholders, customers, employees, Board of Directors, business partners, technology partners, the Government of India, various state governments and regulators. Your continued support, guidance, and patronage are invaluable to us.

Thank you once again for nurturing and guiding our young and dynamic banking institution. We look forward to your continued support in the future.

With regards,

Ravimohan Periyakavil Ramakrishnan

Part-Time Chairman