Care downgrades ESAF SFB's debt papers on asset quality pressures

Kolkata: CareEdge Ratings downgraded ESAF Small Finance Bank's debt instruments by a notch due to its sustained weakness in asset quality and net losses for the last four consecutive quarters. An upgrade is contingent upon additional equity infusion or significant asset quality improvement.

"The outlook may be revised to 'stable' if the company successfully raises substantial equity capital or demonstrates improved asset quality, characterised by a significant reduction in slippage while maintaining a comfortable capital adequacy buffer above regulatory requirements," the rating company said.

Ratings on the bank's tier-2 bonds were revised down to "A-/negative" from "A/negative". The rating on the proposed ₹385 crore lower tier-2 bonds was also revised downward to "A-/negative", denoting low credit risk but not the best risk profile.


CareEdge said that the outlook remained negative as the bank's profitability and asset quality are likely to remain under pressure in the near term.

The rating company also downgraded ESAF's ₹500-crore certificate of deposits to "A1" from "A1+".

ESAF suffered a net loss of ₹521 crore in FY25 and ₹81 crore in the first quarter of the current fiscal, primarily on account of elevated credit costs and interest income reversals, a trend which is expected to persist through FY26.