DIRECTORS’ REPORT

To,

The Members of

ESAF Small Finance Bank Limited

On behalf of the Board of Directors (the "Board") of ESAF Small Finance Bank Limited (the "Bank"), it is our immense
pleasure to present the Seventh Annual Report of the Bank along with the Audited Financial Statements and Auditor's
Report thereon for the Financial Year 2022-23.

1. Financial Highlights and State of the Bank's Affairs

On a Standalone basis, Profit After Tax of the Bank was Rs. 3,023 million in Financial Year 2022-23 compared to
Rs. 547 million in Financial Year 2021-22. Interest Income of the Bank for Financial Year 2022-23 was
Rs. 28,536.59 million as against Rs. 19,399.25 million in Financial Year 2021-22 marking a growth of around 47.10%.
Further, the Bank had Capital and Reserves of Rs. 17,091.29 million as on 31^st March 2023 (Rs. 14,067.96 million
as on 31^st March 2022). The book value per Equity Share was at Rs. 38.03 as on 31^st March 2023 (Rs. 31.30 as on
31^st March 2022). Further details on the financial performance of your Bank are available in the Management
Discussion and Analysis Report, which forms an integral part of the Annual Report.

2. Transfer to Reserves

As per the requirement of the RBI Regulations, the Bank has transferred the following amount to various reserves
during the Financial Year 2022-23:

3. Dividend

Considering the need to preserve capital, your directors have decided to retain the profits earned to serve the
working capital requirements of the Bank. Hence, no dividend is proposed to be declared.

4. Change in the Nature of Business

There was no change in the nature of business of the Bank during the Financial Year 2022-23.

5. Capital and Debt Structure

a. Change in Capital Structure

There were no changes in the Authorised Capital
of the Bank during the Financial Year 2022-23.
As on 31^st March 2023, Authorised Capital of
the Bank was Rs. 600,00,00,000 (Rupees Six
Hundred Crore) divided into 60,00,00,000 (Sixty
Crore) Equity Shares of Rs. 10 (Rupees Ten) each.

There were no changes in the issued, subscribed
and paid-up share capital of the Bank during the
Financial Year 2022-23. As on 31^st March 2023,
the issued, subscribed and paid-up share
capital of the Bank stands at Rs. 449,47,37,980
(Rupees Four Hundred and Forty-Nine Crore
Forty-Seven Lakhs Thirty-Seven Thousand
Nine Hundred and Eighty only) divided into
44,94,73,798 (Forty-Four Crore Ninety-Four
Lakh Seventy-Three Thousand Seven
Hundred and Ninety-Eight) Equity Shares of
Rs. 10 (Rupees Ten) each.

The total number of shareholders of the Bank as
on 31^st March 2023 was 87.

b. Debt Capital

There were no changes to the Debt Capital of the
Bank during the Financial Year 2022-23. As on
31^st March 2023, the total outstanding debt capital,
both listed and unlisted was Rs. 1,930 million.

6. Capital Adequacy

Your Bank is subject to the Basel II Capital Adequacy
guidelines stipulated by the RBI. The Capital
Adequacy Ratio of the Bank is calculated as per the
standardised approach for credit risk. The Capital
Adequacy ratio of the Bank as on 31^st March 2023
is 19.83%, as against the minimum requirement of
15.00% stipulated by the Reserve Bank of India.

7. Our Business Segments

The Bank has identified our business segments,
segregating them into Treasury, Wholesale Banking,
Retail Banking and Other Banking Segments
after considering the internal business reporting
system and guidelines issued by the RBI through
its notification DBOD.No.BP.BC.81/ 21.01.018/
2006-07 dated April 18, 2007 and Accounting
Standard 17 (AS 17) - 'Segment Reporting'.

8. Employee Stock Option Scheme

The Shareholders of the Bank, in the meeting held
on 3^rd January 2020, had approved the ESAF Small
Finance Bank Employee Stock Option Plan 2019,
by way of a special resolution that also authorised
the Nomination Remuneration and Compensation
Committee to grant up to Rs. 2,25,15,552 (Two Crore
Twenty-Five Lakh Fifteen Thousand Five Hundred
and Fifty-Two) Employee Stock Options to the
Employees, in one or more tranches, from time to
time. The objective of the said scheme is to recognise
the contribution of the employees in the formation of
the Bank and to create a feeling of inclusiveness and
enable the employees to get a share in the value that
they help to create for the organisation over a period
of time. The Bank strongly believes that an equity
component in the compensation goes a long way in
aligning the objectives of an individual with those of
the Bank. The objectives of ESOP 2019 are, among
others, to attract and retain employees with Employee
Stock Options as a compensation tool. Through ESOP
2019, the Bank intends to offer an opportunity to
share the value created with those employees who
have contributed or are expected to contribute to the
growth and development of the Bank.

Through the scheme, the Bank intends to grant
equity-based compensation to the employees in two
categories namely:

1) Loyalty Grant to reward eligible employees
for their contributions in the past, tenure and
continued employment in the Bank, which is a
one-time grant.

2) Performance Grant on the basis of employee's
annual appraisals for their future performance
and continuity of services.

The Nomination and Remuneration Committee
has been entrusted with the responsibility of
administering the ESOP 2019 Scheme. As of
31^st March 2023, the Nomination Remuneration and
Compensation Committee of the Board granted
11,25,590 options as the first instalment of loyalty
grant under the ESOP 2019 Scheme, to the employees
identified under the implementation guidelines
for ESAF ESOP 2019 as per the terms of granting.
However, no ESOP was granted or exercised during
the Financial Year 2022-23.

10. Selection, Appointment and Remuneration
of Directors

In compliance with the provisions of the Banking
Regulation Act, 1949, the guidelines issued by
the Reserve Bank of India and Section 178 of the
Companies Act, 2013, the Bank has formulated
and adopted a Nomination Policy for selection and
appointment/ re-appointment/ removal of Directors,
which is disclosed on our website (www.esafbank.
com). Through the said policy, the Bank has formulated
criteria for the appointment of directors, and based
on the said criteria, Nomination Remuneration and
Compensation Committee of the Board (NRCCB) shall
conduct a due diligence process to determine the
suitability of every person who is being considered
for being appointed or re-appointed as a Director of
the Bank, based on the range of skills, experience,
expertise, qualifications, specialised knowledge etc.
of the candidate, and recommend his/her appointment
to the Board. The Nomination Remuneration and
Compensation Committee identifies potential
candidates from diverse backgrounds including but,
not limited to Accountancy, Agriculture and Rural
Economy, Banking, Co-operation, Finance, Law, Small
Scale Industry, Economics, Human Resources, Payment
and Settlement Systems, Business Management,
Risk Management and Information Technology, thus
providing the Board with members who have diverse
knowledge, practical experience and skills to serve the
business interests of the Bank. Every such person shall
meet the 'fit and proper' criteria the Reserve Bank of
India may stipulate from time to time, and accordingly,
any appointment or re-appointment of a Director shall
be subject to prior approval by the NRCCB of the Bank.

The key objectives of the Nomination Policy shall
inter alia include the following:

• To guide the Board in relation to the
appointment, re-appointment or removal of
directors and lay down a selection criterion for
appointment of directors.

• To ensure compliance with applicable laws, rules
and regulations including compliance to the 'Fit
and Proper criteria' of Directors at the time of
their appointment and on a continuous basis.

• To devise a policy on the size and composition
of the Board taking into account the available

and needed diversity and balance in terms of
experience, knowledge, skills and judgment
of the Directors.

During appointment/ re-appointment/ removal of
Directors of the Bank, your Bank has always ensured
that, the provisions of the Companies Act, 2013,
Banking Regulation Act/ RBI Guidelines and directives
and guidelines of SEBI to the extent applicable are
adhered to. In all respects, your Bank has also kept
high standards and met the diversity, structure and
size compositions of the Board and its Committees
as prescribed in various statutes.

The NRCCB is responsible to the Board for
leading the succession planning process in
respect of appointments/ re-appointments in
respect of Directors, employees in the grade
of Senior Management and Key Managerial
Personnel of the Bank.

The Bank has accordingly obtained prescribed
declarations/ undertakings from the Directors as per
the guidelines of the Reserve Bank of India and the
same are placed before the Board of Directors for its
review and noting. An assessment on whether the
Directors fulfill the prescribed criteria is carried out
by the Nomination Remuneration and Compensation
Committee of the Board on an annual basis and also
at the time of their appointment or re-appointment.

Wherever necessary, the Nomination Remuneration
and Compensation Committee is authorised to
engage the services of an External Consultant(s)/
expert in the field of succession planning, to identify
and assess the suitability of candidates for the post
of a Director of the Bank.

The RBI, vide its circular no. DOR. Appt.BC.No.23/29.
67.001/2019-20 dated 04^th November 2019, has
issued the Guidelines on Compensation of Whole
Time Directors / Chief Executive Officers / Material
Risk Takers and Control Function Staff of Private
Sector Banks on Compensation Policy. In accordance
with the aforesaid the RBI Circular, the Board of the
Bank has adopted a revised Compensation Policy for
its Whole-time Directors, Chief Executive Officer of the
Bank and other employees. The salient feature of the
Compensation Policy is as follows:

• To provide a fair and transparent structure that
helps the Bank to acquire and retain the talent
pool critical to building competitive advantage and
brand equity as a social bank focussed on social
transformation and community development.

11. Board of Directors

The composition of the Board of Directors of the
Bank is governed by the Companies Act 2013,
the Banking Regulation Act, 1949 and SEBI Listing
Regulations and is in conformity with the same. As of
31^st March 2023, the Board of Directors comprised
a combination of nine Directors out of which there
were six Independent Directors including a Woman
Independent Director, two Non-Executive Nominee
Directors and one Executive Director. The size of the
Board is commensurate with the size and business
of the Bank. The Board mix provides a combination
of professionalism, knowledge and experience
required in the banking industry and also meets
the criteria prescribed under the Nomination Policy
adopted by the Board.

Change in Directors during the Financial
Year 2022-23

• Withdrawal of Nomination of Shri. Saneesh
Singh (DIN: 02254868) and Shri. Chandanathil
Pappachan Mohan (DIN: 02661757) as
Nominee Directors by M/s. ESAF Financial
Holdings Private Limited, the Corporate
Promoter of the Bank

> The Board of Directors vide Circular

Resolution dated 03^rd August 2022,
accepted the withdrawal of nomination
of Shri. Saneesh Singh (DIN: 02254868)
from the Board of Directors of the Bank
by M/s. ESAF Financial Holdings Private
Limited, the Corporate Promoter of the
Bank, with effect from 26^th July 2022.

> The Board of Directors vide Circular

Resolution dated 01^st November 2022,
accepted the withdrawal of nomination of
Shri. Chandanathil Pappachan Mohan (DIN:
02661757) from the Board of Directors of
the Bank by M/s. ESAF Financial Holdings
Private Limited, the Corporate Promoter of
the Bank, with effect from 31^st October 2022.

• Retirement of Shri. Alex Parackal George
and Smt. Asha Morley as the Non-Executive
Independent Directors of the Bank

Shri. Alex Parackal George (DIN: 07491420)
and Smt. Asha Morley (DIN: 02012799),
Non-Executive Independent Directors of
the Bank, retired from their directorship on
completion of their two terms as Independent
Directors on 12^th December 2022. The Board
of Directors of the Bank placed on record their
appreciation for the valuable contributions by
Shri. Alex Parackal George and Smt. Asha Morley
during their tenure as Directors of the Bank.

• Re-appointment of Shri. Ravimohan
Periyakavil Ramakrishnan as Non-Executive
Independent Director of the Bank and Part
Time Chairman of the Board

Based on the recommendation of Nomination
Remuneration and Compensation

Committee of the Board and the Board
of Directors, the Shareholders in the 06^th
Annual General Meeting of the Bank held
on 13^th December 2022, approved the
re-appointment of Shri. Ravimohan Periyakavil
Ramakrishnan (DIN: 08534931) as Non-Executive
Independent Director of the Bank for a period
of three consecutive years with effect from
21^st December 2022 up to 20^th December 2025.
The Board of Directors had re-appointed Shri.
Ravimohan Periyakavil Ramakrishnan as the
Part-Time Chairman of the Board for a period
of three consecutive years with effect from
21^st December 2022 up to 20^th December 2025.

• Appointment of Dr. Vinod Vijayalekshmi
Vasudevan as Independent Director of the
Bank

The Board of Directors in their meeting
held on 22^nd December 2021 had appointed
Dr. Vinod Vijayalekshmi Vasudevan (DIN:
02503201) as Additional Director (Independent
Director) of the Bank in terms of Section 149
and 161 of the Companies Act, 2013, with
effect from 22^nd December 2021, considering
his vast knowledge and experience in
the field of Information Technology and
Business Management.

The Shareholders in the 06^th Annual
General Meeting of the Bank held on
13^th December 2022 approved the appointment
of Dr. Vinod Vijayalekshmi Vasudevan as the
Non-Executive Independent Director of the
Bank, who was appointed as an Additional
Director (Independent Director) with effect
from 22^nd December 2021, for a period of
three consecutive years with effect from
22^nd December 2021 up to 21^st December 2024.

• Appointment of Smt. Kolasseril
Chandramohanan Ranjani and Shri. Ravi
Venkatraman as Non-Executive Independent
Directors of the Bank

Based on the recommendation of Nomination
Remuneration and Compensation

Committee of the Board and the Board
of Directors, the Shareholders in the 06^th
Annual General Meeting of the Bank held on
13^th December 2022, approved the appointment
of Smt. Kolasseril Chandramohanan Ranjani
(DIN: 01735529) and Shri. Ravi Venkatraman
(DIN: 00307328) as Non-Executive Independent
Directors of the Bank for a period of
three consecutive years with effect from
13^th December 2022 up to 12^th December 2025.

• Appointment of Shri. John Samuel as Non¬
Executive Nominee Director of the Bank,
on the basis of the nomination of Shri.
Kadambelil Paul Thomas, Individual Promoter
of the Bank

Based on the recommendations of the
Nomination Remuneration and Compensation
Committee of the Board, the Board of Directors
in the meeting held on 03^rd December 2022
approved the appointment of Shri. John Samuel
(DIN: 07725212) as a Non-Executive Nominee
Director on the Board of the Bank for a period
of three consecutive years with effect from
13^th December 2022 up to 12^th December 2025.

Shri. John Samuel, who retires by rotation
as Director, at the conclusion of the ensuing
Annual General Meeting of the Bank is proposed
to be re-appointed and has offered himself for
re-appointment.

• Appointment of Shri. Ajayan Mangalath
Gopalakrishnan Nair as Non-Executive
Nominee Director of the Bank, on the basis
of the nomination of ESAF Financial Holdings
Private Limited, Corporate Promoter of the
Bank

Based on the recommendations of
the Nomination Remuneration and
Compensation Committee of the Board, the
Board of Directors in the meeting held on
03^rd December 2022 approved the appointment
of Shri. Ajayan Mangalath Gopalakrishnan Nair
(DIN: 09782416) as a Non-Executive Nominee
Director on the Board of the Bank for a period
of three consecutive years with effect from
13^th December 2022 up to 12^th December 2025.

As on the date of this report, the Bank has Nine
Directors out of which there are Six Independent
Directors including a Woman Independent
Director. The brief profiles of the Directors
are available on the website of the Bank on
www.esafbank.com.

Familiarisation Programme

Complying with SEBI Listing Regulations , provisions
of the Companies Act, 2013 and the RBI guidelines,
Familiarisation Programmes were conducted
during the Financial Year 2022-23 to give an
overview and introduction to the Independent
Directors about the Bank's business and operations.

Under this programme, newly appointed directors
are appraised with the organisation structure,
operational overview, financial overview, board
matters and procedures, key risk issues and its
mitigation strategy, among others.

Further, all the newly appointed Board Members
undergo a face to face induction schedule where the
Bank's Management Team provides insights about
the affairs of their function and of the Bank as a
whole. The details of the familiarisation programme
imparted to Independent Directors are available on
the website of the Bank at www.esafbank.com.

12. Evaluation of Performance of the
Board of Directors

The Board has formulated a Performance Evaluation
Policy including a questionnaire for performance
evaluation of the Individual Directors, Committees of
the Board, Chairman, Managing Director and CEO and
the Board as a whole. The questionnaire designed for
the performance evaluation covering various aspects
of performance, including structure of the board,
meetings of the board, functions of the board, role
and responsibilities of the board, governance and
compliance, evaluation of risks, grievance redressal
for investors, conflict of interest, stakeholder value
and responsibility, relationship among directors,
director competency, board procedures, processes,
functioning and effectiveness, was circulated to all
the directors of the Bank for the annual performance
evaluation. The appraisal of each of the Directors of
the Bank is done based on the evaluation conducted
with a set of pre-determined evaluation factors:

• The performance evaluation of the Board as a
whole shall be carried out by all the Directors.

• The performance evaluation of the Board
Committee(s) shall be carried out by the
members of each of the Committees.

• The performance evaluation of Managing
Director and CEO/ Executive Director shall be
done by all the directors except the Managing
Director and CEO.

• The performance evaluation of Chairman of
the Bank is done by all the Directors except the
person being evaluated.

• The performance evaluation of Independent
Directors is done by all the Directors except the
person being evaluated.

• The performance evaluation of the
Non-Executive Director is done by all the
Directors except the person being evaluated.

The performance evaluation of the Board of
Directors, Committees of the Board and individual
Directors was conducted during the Financial Year.

The Board and the Nomination Remuneration and
Compensation Committee of the Board reviewed
the performance of the Individual Directors
and noted that the results of the performance
evaluation indicated a high degree of satisfaction
among directors.

13. Declaration from Independent Directors

The Board has received declarations from the
Independent Directors as required under Section
149(7) of the Companies Act, 2013, and the Board
is satisfied that the Independent Directors meet the
criteria of independence as mentioned in Section
149(6) of the Companies Act, 2013 and Regulation
16(1) (b) of SEBI Listing Regulations and that they have
complied with the code of conduct for independent
directors as prescribed under Schedule IV of the
Companies Act, 2013.

In the opinion of the Board, all the Independent
Directors meet the criteria with regards to integrity,
expertise and experience as required under
applicable laws.

All Independent Directors of the Bank have
registered themselves in the data bank as specified
under Section 150 of the Companies Act, 2013,
read with Rule 6 of Companies (Appointment
and Qualifications of Directors) Rules, 2014 and
have qualified the prescribed proficiency test.
The Independent Directors (not exempted under
the Companies (Appointment and Qualification of
Directors) Fifth Amendment Rules, 2020 as notified
on 18^th December 2020) have qualified the online
proficiency self-assessment as required under
aforesaid rule within the prescribed timeline.

The terms and conditions of appointment of
Independent Directors are available on the
website of the Bank.

14. Directors and Officers Liability Insurance
Policy

The Bank has a Directors and Officers Liability
Insurance Policy which protects Directors and Officers
of the Bank from any breach of fiduciary duty.

15. Corporate Governance

The Bank is committed to achieving and adhering
to the highest standards of Corporate Governance
and it consistently benchmarks itself with the best
practices in this regard. A report on Corporate
Governance for the Financial Year 2022-23 has been
annexed to the Annual Report.

16. Meetings of the Board

The Board of Directors met Fourteen (14) times
during the Financial Year 2022-23.

The meetings of the Board of Directors were
convened in accordance with applicable laws and
standards and the intervening gap between the said
meetings was not exceeding 120 days. The details
of Board Meetings are available in the Corporate
Governance Report which forms part of the Annual
Report of the Bank for the Financial Year 2022-23.

During the year, Dr. Vinod Vijayalekshmi Vasudevan
had sought leave of absence from three (3) meetings
of the Board and Dr. V. A. Joseph had sought
leave of absence from one (1) meeting of the
Board of Directors.

As on 31^st March 2023, the Bank had (11) Board
Committees:

The details of composition, number of meetings
held and date thereof and terms of reference of the
above Committees are available in the Corporate
Governance Report which forms part of the Annual
Report of the Bank for the Financial Year 2022-23.

17. Key Managerial Personnel

The following officials of the Bank are the "Key
Managerial Personnel" pursuant to the provisions of
Section 203 of the Companies Act, 2013:

The brief profiles of the Key Managerial Personnel
are available on the website of the Bank at
www.esafbank.com.

18. Internal Financial Controls

The Board of Directors confirms that your Bank has
laid down a set of standards, processes and structures
which enable it to implement Internal Financial
controls across the organisation with reference to
Financial Statements and that such controls are
adequate and are operating effectively. The Internal
Financial Control framework of the Bank ensures that:

• Internal Financial Controls are established
for critical and material processes
handled by the Bank.

• Draw up recommendations based on good
practices to develop or strengthen the internal
control systems.

• Ensure that the IFCs are adequate and operating
effectively, by periodic review and testing.

• Periodic reporting of the status to the Audit
Committee of the Board.

• The existence and adequacy of IFCs is
demonstrated to various internal and
external stakeholders.

The Internal Audit Department of the Bank has
tested each of the controls and during the year under
review, there are no material or serious observations
of inefficiency or inadequacy of such controls.

19. Implementation of Ind AS

The Ministry of Finance, Government of
India ("GOI"), had vide its press release dated
18^th January 2016 outlined the roadmap for
implementation of International Financial Reporting
Standards ("IFRS") converged Indian Accounting
Standards ("Ind AS") for Scheduled Commercial Bank
(excluding RRBs), NBFC and Insurance companies.
The RBI vide its circular dated 22^nd March 2019,
deferred the implementation of Ind AS for Scheduled
Commercial Banks ("SCB") till further notice,
pending the consideration of some recommended
legislative amendments by GOI. The RBI has not
issued any further notification on implementation of
Ind AS for SCBs.

The Bank submits its Proforma Ind-AS financials
on half yearly basis to the RBI based on the GAP
assessment carried out by the Bank. The Bank is
currently handling the impact analysis and reporting
offline by using excel based models. However, the Bank
is in the process of implementing system solutions
(Ind AS 109 and 116) and hiring skilled resources to
implement Ind-AS accounting.

20. Directors' Responsibility Statement

Pursuant to Section 134(3) of the Companies Act,
2013, the Board of Directors hereby declare and
confirm to the best of their knowledge and belief that:

i) I n the preparation of the annual accounts for
the year ended 31^st March 2023, the applicable
accounting standards had been followed
along with proper explanations relating to
material departures;

ii) Such accounting policies as specified in
Schedule III to the Financial Statements have
been selected and applied consistently and
judgements and estimates have been made that
are reasonable and prudent so as to give a true
and fair view of the state of affairs of the Bank as
at 31^st March 2023 and of the profit of the Bank
for the year ended on that date;

iii) Proper and sufficient care has been taken for
maintenance of adequate accounting records in
accordance with the provisions of the Companies
Act, 2013 for safeguarding the assets of the
Bank and for preventing and detecting frauds
and other irregularities;

iv) Annual accounts have been prepared on a
going concern basis;

v) Internal financial controls to be followed by
the Bank were in place and that the same were
adequate and were operating effectively;

vi) Proper system to ensure compliance with
the provisions of all applicable laws was
in place and the same was adequate and
operating effectively.

21. Environment Social and Governance
Practices and Corporate Social
Responsibility

In accordance with Section 135 of the Companies
Act, 2013, read with the Companies (Corporate Social
Responsibility Policy) Rules, 2014, as modified from
time to time, the Bank has established the Corporate
Social Responsibility and Sustainability ("CSRSCB")
Committee of the Board.

Environment Social and Governance
Practices

In the financial and banking industry, ESG has become
a critical area of focus and the Bank endeavours to
continually improve its ESG performance. There is a
robust ESG policy framework which articulates ESG
focus areas and provides guidance for ESG practices
such as corporate governance, environmental and
employee related initiatives, policy revisions and
other ESG related projects undertaken. There is a
Sustainability Council comprising representatives
from relevant functions for the implementation of
the framework. This council plays a critical role in
providing data on various ESG parameters which is
subsequently collated, analysed and reported to the
Head of Sustainable Banking. The progress is also
reported to the CSRSCB and the Board periodically.

The Bank follows a social business strategy seeking
a Triple Bottom Line impact: people; planet; and
prosperity and believe that the social, environmental,
and economic outcomes of our business create
synergies that have an amplified impact on our
stakeholders. The legacy of a mission, fighting the
partiality of prosperity (i.e., the drive for inclusion
of marginalised sections of society and the equity
of opportunities) led to the formation of our Bank.
The Bank's vision is to be India's leading social bank
that offers equal opportunities through universal
financial access and inclusion and livelihood and
economic development. The Bank has adopted
various policies to implement our triple bottom
line approach, including an Environmental, Social
and Governance ("ESG") policy. Pursuant to the ESG
policy, we are committed to (i) the protection of the
environment and ensuring sustainable development,
(ii) promoting financial inclusion and gender equality
through specialised financial services; and (iii)
establishing a governance framework to ensure
accountability, transparency and compliance with
internal and external ESG standards. In 2020, the
Bank won the "Global Sustainability Award 2020"
for outstanding achievements in sustainability
management by the Energy and Environment
Foundation. Our ESG Grading scores from CARE
Advisory Research & Training Limited in its report
titled "ESG Grading Report of ESAF Small Finance
Bank" published in June, 2023 were: (i) 62% for the
Environmental pillar, with remarks including our
commitment to green finance and environment

conscious operations; (ii) 68% for the Social pillar,
with remarks including that we have demonstrated
healthy labour management practices, including
the implementation of various policies that
embody international and national human rights
standards; and (iii) 76% for the Governance pillar,
with remarks including that we have aligned with
leading governance practices, such as adequate
independence of our Board (66% independent
members on the Board) and committee levels.
We received a rating of CareEdge ESG 3 (good), with
an overall score of 71 compared with the industry
average overall score of 59.8. CARE Advisory Research
& Training Limited's ESG specialist team undertook
the ESG Grading of our Bank during May, 2023.

Corporate Social Responsibility

The Bank has adopted a Board-approved CSR
policy in compliance with the requirements of the
Companies Act, 2013 and the Companies (Corporate
Social Responsibility) Rules, 2014. The Bank's CSR
focus areas are education, healthcare, sanitation
and livelihood development. The Bank has entered
into a memorandum of understanding dated
20^th December 2021 with ESAF Foundation (formerly
known as Evangelical Social Action Forum), pursuant
to which the ESAF Foundation provides services to
the Bank for the execution of CSR projects, including
providing project proposals, timelines and budgetary
estimates for CSR projects within the focus areas.
The memorandum of understanding is valid for a
term of four years. The Bank has also entered into an
agreement with Prachodhan Development Services
dated 29^th August 2022, pursuant to which it provides
services to us for the execution of certain CSR projects.
The agreement is valid for a term of four years.

The CSRSCB is in charge of reviewing and
recommending to the Board the Bank's numerous
CSR activities, including the status of the Bank's CSR
Projects. The Board has examined and approved
the CSR Policy, Projects, Project Expenditure,
and associated topics based on the CSRSCB's
recommendations. Following that, the Bank
implemented the CSR Projects with Board approval.
The CSR Policy of the Bank is available on the Bank's
website: www.esafbank.com

The Bank's CSR Projects and CSR Project Expenditure
for Fiscal Year 2022-23 are in accordance with the
CSR mandate as specified in Sections 134 and 135
of the Act read with Schedule VII to the Act and
the Companies (Corporate Social Responsibility
Policy) Rules, 2014, as amended from time to time,
and in accordance with notifications issued by the
Government of India from time to time.

Every year, the Bank allocates 5% of its average net
profits, computed in accordance with the manner
as prescribed in the Section 135 of the Companies

Act, 2013 as against the requirement of 2%.
During the Financial Year 2022-23, the Bank has
allocated Rs. 8,26,00,000 towards CSR expenditures,
as against the allocation of Rs. 8,76,00,000 for the
Financial Year 2021-22.

The CSR projects and programmes were
implemented directly and/or through implementing
partner organisations with a proven track record of
implementing cost and process efficient CSR projects
and/or programmes that were scalable, sustainable,
outcome driven, and committed to making a positive
societal impact in Fiscal Year 2022-23. Based on the
CSRSCB's review and recommendation, the Board
reviewed and approved all CSR Projects, CSR Project
Expenditure Payments, and CSR Administration
Overhead Expenses, including the Unspent CSR
Project Expenditure Funds of Financial Year
2022-23, which were transferred to the Unspent CSR
Account Financial Year 2022-23 on 31^st March 2023.
The Annual Report on CSR Activities, which is annexed
to this report, contains a brief summary of the CSR
Policy, including an overview of the programmes
implemented, the makeup of the CSR Committee,
and CSR expenditure for the fiscal year under review.

22. Business Responsibility and Sustainability
Report

In May 2021, the SEBI made an amendment to
Regulation 34(2)(f) of the SEBI Listing Regulations,
by introducing enhanced disclosure requirements
regarding ESG parameters through a revised format
called the Business Responsibility and Sustainability
Report ("BRSR"). The Business Responsibility
Report has been replaced by BRSR, which is a more
comprehensive disclosure that can showcase ESG
performance with enhanced transparency, shifting
the focus to quantifiable metrics by providing essential
and voluntary indicators rather than qualitative and
subjective metrics. The Bank has published a BRSR for
Financial Year 2022-23, even though SEBI mandated
only top 1,000 listed organisations to do so from
Financial Year 2022-23 onwards, endeavouring to be
at the forefront of sustainability reporting by being
an early adopter of BRSR.

BRSR for Financial Year 2022-23 is part of
the Annual Report of the Bank and is also
available on the Bank's website viz., URL:
https://www.esafbank.com/report/esaf-small-
finance-bank-annual-reports/

23. Human Resources Initiatives

As on 31^st March 2023, the total number of
employees of the Bank was 5034. The Bank believes
its employees are one of the most important assets
and that a content and happy workforce will deliver
the joy of banking to our customers and drive
our performance.

Internal promotions are conducted every year
based on a well-defined process, published in
advance to make the process fully transparent.
Promoted employees are given special training
on leadership and team building. The Bank
recognises the importance of continuous learning
and has adopted a comprehensive learning and
development policy.

Each employee onboarded has to mandatorily
undergo a minimum of two weeks' training, which
includes on-the-job training in Microfinance at the
banking outlets. After the on-the-job training at the
banking outlets, they are given one week's residential
induction training and also another week's training
on core banking solution software.

The Bank has facilitated a culture of self-learning
for its employees by establishing an online learning
portal, ESAF Small Finance Bank Online Academy.
The Bank conducts various topic-based training
sessions for our employees and also has tie-ups with
coaching institutes in multiple locations for approved
certification courses at concessional fees for
employees and gives incentives to those employees
who pass those courses. The Bank also regularly
nominates senior staff to attend programmes
arranged by certain financial educational institutes.

24. Disclosure under the Sexual Harassment
of Women at Workplace (Prevention,
Prohibition and Redressal) Act, 2013

The Bank continues with the belief of zero tolerance
towards sexual harassment in workplace and
continues to uphold and maintain itself as a safe
and non-discriminatory organisation. To achieve
the same, the Bank reinforces the understanding
and awareness of The Sexual Harassment of
Women at Workplace (Prevention, Prohibition and
Redressal) Act, 2013 ("POSH"). The Bank has in place,
a policy in line with the requirements of the Sexual
Harassment of Women at Workplace (Prevention,
Prohibition & Redressal) Act, 2013 and an Internal
Complaints Committee has been set up for redressal
of complaints. Any complaint pertaining to sexual
harassment is diligently reviewed and investigated,
and treated with great sensitivity. The Internal
Committee members have been trained in handling
and resolving complaints and have also designed an
online e-learning POSH Awareness module, which
covers the larger employee base.

During the Financial year 2022-23, no complaints
were received under the Policy.

25. Compliance Functions

The Bank has a dedicated independent Compliance
Department headed by a Chief Compliance Officer,
which operates as per a well-documented compliance
policy for ensuring regulatory compliance, across all

businesses and operations. The key functions of the
Compliance Department shall include ensuring core
compliance areas such as statutory, regulatory, and
other related mechanisms for the dissemination of
regulatory prescriptions and guidelines amongst
respective functions and monitoring compliance with
regulatory guidelines, compliances, correspondence
with the RBI, vetting the guidelines/ circulars issued,
for compliance with regulatory guidelines and vetting
of Bank's Policies, coordinating and monitoring
submission of the RBI returns, coordinating
collection of inputs from various departments for
the RBI Inspection and for rectification of the RBI
inspection irregularities etc. The Bank has a well
defined and structured mechanism to assess the
compliance risk and monitor its mitigation measures
thereby ensuring the effectiveness of the compliance
function in managing the compliance risk.

26. Risk Management

The Bank identifies, assesses and manages all
material risks associated with its various operations
on a proactive basis. Risk Management governance
in the Bank is overseen by the Board of Directors.
The Board approves the Risk management policies
which are reviewed, from time to time, with updated
regulatory guidelines and internal instructions.
The Risk Management Committee of the Board
(RMCB) sets the processes and standards for risk
management functions and periodically reviews
the same. The Risk Management Department
coordinates the bank-wide risk management and
implements the policies and procedures approved
by the Board and the RMCB. The Department has five
divisions for managing the major risk streams, Credit
risk, Operational risk, Market risk, Information and
Cyber security risk and Transactional risks.

Executive-level risk management committees, namely,
Credit Risk Management Committee, Operational
Risk and Business Continuity Management
Committee, Market Risk & Asset Liability Management
Committee, Information Security Governance
Committee and Outsourcing & Vendor Assessment
Committee regularly assess the respective risks
and initiate remedial actions wherever warranted.
The executive-level committees periodically report
the various risk events, levels and direction of major
risks to the Risk Management Committee of the
Board. Chief Risk Officer who reports directly to
the Managing Director and CEO, co-ordinates the
risk management functions. The Bank has a robust
Internal Capital Adequacy Assessment Process by
which all material risks the Bank is facing in its course
of business are identified, assessed and monitored.
Capital requirement commensurate with the risk
profile of the Bank is assessed and capital planning
for ensuring growth in future, as per the business
strategy of the Bank, also is undertaken periodically.
Stress testing is carried out periodically to ensure that
the Bank can mitigate and manage the existing and
emerging risks.

27. Information Security and Cyber Security
Risk Management

The Information Security Policy and the Cyber Security
Policy approved by the Board of Directors provide the
base for information technology risk management
and security administration. The Information
Security Governance of the Bank is spearheaded
by the Board of Directors, Information Technology
Strategy Committee of the Board and the Executive
Level Information Security Governance Committee.

The Bank has a dedicated Information Security
Division which functions under the Risk Management
Department. The Information Security Division is
headed by the Chief Information Security Officer,
who reports to the Chief Risk Officer.

The Bank adopts best practices to ensure the safety
and security of customer transactions, data privacy
and information security in all three modes of data
at rest, data in use and data in transit. The Bank
liaisons with various authorities like CSITE (Cyber
Security Information Technology Examination) Cell,
the RBI, CERT-In (Computer Emergency Response
Team-India), IDRBT, etc. to keep abreast of the
security incidents, measures and for regulatory
compliance on an ongoing basis.

28. Business Continuity Management

The Bank relies on increasingly complex technology
and business models to deliver our products.
Technology-based products include interconnected
ATM networks, tele-banking, core banking solutions,
a mobile banking application and internet
banking solutions.

The Bank has established a business continuity plan,
which involves the creation and implementation of
strategies that recognise threats and risks that the
Bank may be subject to, with a focus on the protection
of personnel and assets, while maintaining continued
operations in the event of a disaster. The process
defines potential risks, measures their impact,
designs safeguards and procedures to mitigate
those risks, tests those procedures to ensure that
they work, and executes the implementation part.
These plans and processes are periodically reviewed
to ensure that they are effective and functional.

The Bank has an executive-level Crisis Management
and Quick Response Team that is responsible for
initiating immediate actions in the event of the
occurrence of a crisis and to guide the business units
on steps to be taken to protect the assets and to
ensure continuity of business. The Crisis Management
and Quick Response Team is responsible for
initiating remedial actions in case of any breakdown
or failure of critical systems, occurrence of natural
disasters or accidents or any other events affecting
business continuity.

29. IT Initiatives

Technology driven model with an advanced
digital technology platform

The Bank offers its customers various digital
platforms, including an internet banking portal, a
mobile banking platform, SMS alerts, bill payments
and RuPay branded ATM cum debit cards. All banking
and payment transactions, such as remittances and
utility payments, can be completed through these
platforms. The Bank's customers are also able to
register to savings accounts on a unified payment
interface based mobile applications.

The Bank's account opening and loan underwriting
processes have been digitalised by using tablets,
which enabled it to reduce the turnaround time and
offer better service to customers. CASA accounts
can be opened through tablets, which enables
it to provide doorstep services to its customers.
By leveraging technology solutions, the Bank provides
customers with pre-generated kits immediately upon
account opening, enabling them to use the ATM-cum-
debit card provided with the pre-generated kits
without having to wait for the ATM-cum-debit card
to be activated across channels, thereby resulting
in increased customer satisfaction. The Bank has
crossed a milestone in technology with the successful
adoption of e-signatures for Micro Loan disbursals.
As at 31^st March 2023, the Bank has disbursed
over 0.53 million loans using e-signatures, which
showcases its commitment to digital advancement.
Through the adoption of e-signatures, the Bank has
saved paper, which was earlier being utilised for
the purpose of loan disbursement documentation,
involving handwritten signatures. This will indirectly
save water and reduce deforestation as per our
commitment to reduce greenhouse gas emissions
commitment set forth in the Bank's ESG policy.

The Bank has a digitalised central credit-processing
unit for its micro loans. The customer onboarding
process has been predominantly digitalised for its
micro loans. The Bank leverages technology for
underwriting and credit sanctioning for its loan
products based on inputs from credit bureaus and/
or the customer data analytics. It has implemented
technology solutions that enable it to ensure cashless
disbursement of loans and implemented electronic
signing for micro loans, both of which have reduced
paperwork. The Bank's collections mechanism has
also been digitalised through the use of mobile
applications and a payment gateway through which
the borrowers can repay their loans.

The Bank is continuously working towards
improving its customers' experience through the
use of technology and has implemented a customer
relationship management solution to better handle
customer requests. The Bank believes that such
initiatives have helped us improve our customer
service and enable delivery of services in a more
cost-effective manner.

30. Customer Service Quality

The Bank makes use of both interactive voice response systems and call centre agents to manage its customers'
queries. The call centre facility is available to the customers 24 hours per day, seven days per week. The call centre
agents are multi-lingual and can assist the customers in most languages spoken in areas where the Bank operates.
All calls made to the call centre are recorded and these recordings are made available to the Bank for monitoring,
quality control and reference purposes. Daily reports of all calls handled by the call centre are monitored by the
Customer Service Quality department. The call centre facility is managed by FIS.

The customer service quality department also conducts fortnightly review calls to discuss areas of improvement
to ensure the efficient resolution of customer complaints. The Department undertakes surveys from customers to
obtain their feedback on the quality of the Bank's customer service.

31. Overall Remuneration

Details of remuneration as required under Section 197(12) of the Companies Act, 2013 read with Rule 5 of Companies
(Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given below:

32. Whistle Blower Policy/ Vigil Mechanism

The Bank has implemented a Vigil mechanism
through the adoption of a Whistle Blower and
Protected Disclosure Policy in compliance with the
relevant provisions of the Companies Act, 2013 and
rules thereunder. The Bank provides an opportunity
to raise concerns of employees, vendors and
directors relating to fraud, malpractice or any other
activity or event which is against the interest of the
Bank or society as a whole. The details of Whistle
Blower complaints received and subsequent action
taken and the functioning of the Whistle Blower
mechanism are reviewed periodically by the Audit
Committee of the Board. During the Financial Year
2022-23, four complaints were received under the
Whistle Blower Mechanism. The functioning of the
Mechanism is reviewed by the Audit Committee from
time to time. No employee of the Bank has been
denied access to the Audit Committee for raising a
whistle blower complaint.

The policies are available on the official website of
the Bank. (www.esafbank.com)

33. Code Of Conduct To Regulate, Monitor And
Report Insider Trading

The Bank has in place, a Policy for Monitoring Insider
Trading which inter alia acts as the Code of Conduct
to Regulate, Monitor and Report ("Code") insider
trading in the securities of the Bank and the Code
of Practices and Procedures for Fair Disclosure of
Unpublished Price Sensitive Information ("UPSI").
The Code, inter alia, prohibits dealing in securities
by insiders while in possession of UPSI. The said
Code has been amended, from time to time, to give
effect to the various notifications/circulars of the
Securities and Exchange Board of India ("SEBI") with
respect to the SEBI (Prohibition of Insider Trading)
Regulations, 2015.

The Policy for Monitoring of Insider Trading
is available on the Bank's website viz., URL:
https://www.esafbank.com/policies/.

34. Statutory Auditors

The Shareholders of the Bank in the Annual
General Meeting held on 29^th September 2021
had appointed M/s. Deloitte Haskins and Sells,
Chartered Accountants with Firm Registration
number 117365W, based on the approval of the
Reserve Bank of India vide letter No. Ref DOS.ARG.
No.AS-10/08.61.005/2019-20 dated 08^th May 2020 as
the Statutory Auditors of the Bank for a continuous
period of two years, to hold office from the
conclusion of the 05^th Annual General Meeting till
the conclusion of the 07^th Annual General Meeting
of the Bank, subject to the satisfaction of eligibility
norms each year. They have been the Statutory
Auditors of the Bank since the conclusion of the
04^th Annual General Meeting of the Bank.

As per the RBI Circular Ref.No.DoS.CO.ARG/
SEC.01/08.91.001/2021-22 dated 27^th April 2021,
entities with asset size of Rs. 150,000 million and
above as at the end of the previous year, shall conduct
the statutory audit under the joint audit of a minimum
of two audit firms [Partnership firms/Limited Liability
Partnerships (LLPs)]. As the asset size of the Bank as
on 31^st March 2022 was Rs. 177,070 million, based on
the recommendation of the Audit Committee of the
Board and Board of Directors, the Shareholders of
the Bank in the 06^th Annual General Meeting held on
13^th December 2022 had appointed M/s. Abarna and
Ananthan, Chartered Accountants (Firm Registration
Number: 000003S) as the Joint Auditor of Bank for
a period of three financial years who will hold office
from the conclusion of the 6^th Annual General Meeting
till the end of the 9^th Annual General Meeting.

Considering the completion of tenure of
M/s. Deloitte Haskins & Sells, Chartered Accountants,
and based on the approval of Reserve Bank of India
vide letter No. Ref CO.DOS.RPD.No. S2270/08-61-
005/2023-24 dated 23^rd June 2023 as the Statutory
Auditors of the Bank for the Financial Year 2023-24,
the Audit Committee and the Board of Directors have
recommended the appointment of M/s. Kirtane and
Pandit LLP, Chartered Accountants (Firm Registration
No. 105215W/W100057) as the Joint Statutory
Auditors of the Bank for the Financial Year 2023-24.

The Board of Directors in its meeting held on
08^th February 2023 had approved an aggregate
professional fee of Rs. 8.50 million plus GST and
reimbursement of reasonable out of pocket expenses
for the Financial Year 2022-23, to be allocated by the
Bank between M/s. Deloitte Haskins and Sells and
M/s. Abarna and Ananthan , Chartered Accountants,
depending on roles and responsibilities and the
scope of work undertaken by each of them during
the course of audit.

35. Secretarial Auditor

Pursuant to the provisions of Section 204 of
the Companies Act, 2013, and the Companies
(Appointment and Remuneration of Managerial
Personnel) Rules, 2014, the Board of Directors of
the Bank in the meeting held on 08^th February 2023
has appointed Shri. M. Vasudevan, FCS, Practicing
Company Secretary (COP: 2437), Thrissur, holding
Membership No. F 4177 for a third term to conduct
a Secretarial Audit of the Bank for the Financial Year
2022-23 and to hold the office till the conclusion
of Seventh Annual General Meeting of the Bank.
The Secretarial Audit Report does not contain any
qualification, reservation or adverse remark and
the report for the Financial Year 2022-23 is enclosed
herewith as Annexure - III. The Bank has complied
with the Secretarial Standards specified by the
Institute of Company Secretaries of India and notified
by the Ministry of Corporate Affairs under Section
118(10) of the Companies Act, 2013.

36. Pillar III Disclosures

The Pillar III Disclosures of the Bank as on 31^st March
2023, are enclosed herewith as Annexure-IV.

37. Particulars of contracts or arrangements
with Related Parties

All Related Party Transactions are entered into
with the prior approval of the Audit Committee
of the Board and an omnibus approval of the
Audit Committee is obtained for the Related Party
Transactions which are repetitive in nature. All the
transactions with related parties are reviewed by
the Audit Committee and the Board on a quarterly
basis. The details of transactions to be reported
under 134(3)(h) read with Rule 8(2) of the Companies
(Accounts) Rules, 2014, in Form AOC-2 are enclosed
herewith as Annexure-I.

38. Annual Return

Pursuant to the provisions of Section 134(3)
(a) and Section 92(3) of the Act read with Rule
12(1) of the Companies (Management and
Administration) Rules, 2014, the Annual Return of
the Bank is available on the Bank's website viz., URL:
https://www.esafbank.com/investor-relations-info/.

39. Details in respect of frauds, if any, reported
by Auditors:

There were no frauds reported by the Statutory
Auditors for the Financial Year 2022-23.

40. Statutory Disclosures

None of the Directors of the Bank are disqualified as
per provisions of Section 164(2) of the Companies
Act, 2013. The Directors have made necessary
disclosures, as required under various provisions of
the Companies Act, 2013, Securities and Exchange
Board of India Regulations and guidelines of the
Reserve Bank of India.

41. Information as per Section 134 (3) (q) of the
Companies Act, 2013 read with Rule 8 of the
Companies (Accounts) Rules, 2014

i) The Bank has no activity relating to the
conservation of energy or technology absorption.

ii) During the Financial Year 2022-23, the
Bank had foreign currency expenditure of
Rs. 86,52,450.94/- and there were no foreign
currency earnings during the period.

42. Material changes and commitments
affecting financial position of the Bank

There have been no material changes and
commitments between the end of the Financial Year
2022-23 and the date of this report, affecting the
financial position of the Bank.

43. Explanations or comments by the Board on
every qualification, reservation, adverse
remark or disclaimer made in the Statutory
Auditor's Report or in the Secretarial Audit
Report

There are no qualifications, reservations, adverse
remarks or disclaimers in the Auditor's Report and
the Secretarial Audit Report.

44. Information About the Financial
Performance/ Financial Position of the
Subsidiaries, Associates and Joint Venture
Companies

The Bank does not have any subsidiaries, associates
or joint venture companies.

45. Deposits

Being a Banking Company, the disclosures required
as per Rule 8(5)(v) and (vi) of the Companies Accounts
Rules, 2014, read with Sections 73 and 74 of the
Companies Act, 2013, are not applicable to your Bank.

46. Loans / Guarantees / Investments

Being a Banking Company, the provisions of Section
186 of the Companies Act, 2013 is not applicable.

47. Cost Records

The Bank is not required to maintain cost records as
specified by the Central Government under sub-section
(1) of Section 148 of the Companies Act, 2013.

48. Significant and Material Orders

In accordance with Rule 8(5)(vii) of the Companies
(Accounts) Rules, 2014, there have been no significant
and material orders passed by the regulators or
courts or tribunals impacting the going concern
status and the future operations of the Bank.

49. Despatch Of Annual Report

The MCA has issued General Circular No.
20/2020 dated 05^th May 2020 read with other
relevant circulars, including General Circular No.
10/2022 dated 28^th December 2022 and applicable
circulars/ notifications issued by SEBI relaxing the
requirement of dispatching physical copies of the
Annual Report and the Notice convening the AGM to
Shareholders. Members who wish to have a physical
copy may write to the Company Secretary of the Bank
at investor.relations@esafbank.com or submit a
written request to the Registered Office of the Bank.
In accordance with the aforesaid circulars, the web
link of the Annual Report and the Notice convening
the AGM of the Bank is being sent in electronic mode
only to members whose e-mail address is registered
with the Bank or the Depository Participant(s).
Those members, whose email address is not registered

with the Bank or with their respective Depository
Participant(s) and who wish to receive the Notice of
the AGM and the Annual Report for the financial year
ended 31^st March 2023, can get their email address
registered by following the steps as detailed in the
Notice convening the AGM. The Annual Reports of
your Bank are available on the Bank's website viz., URL:
https://www.esafbank.com/report/esaf-small-
finance-bank-annual-reports/.

50. Strictures and Penalties

Your Bank was not imposed any penalty or strictures
imposed by the SEBI /or any other statutory
authorities on matters relating to the capital market.

Acknowledgement

The Directors are grateful to the Reserve Bank of
India, other government and regulatory authorities,
other banks and financial institutions for their
support and guidance. The Directors gratefully
acknowledge the excellent relationship with the
Board of M/s. ESAF Financial Holdings Private Limited,
Corporate Promoter of the Bank and their continued
guidance and support for executing various activities
of the Bank. The Directors also place on record their
sincere thanks to the valued clients and customers
for their patronage. The Board also expresses its
deep sense of appreciation to all employees of the
Bank for their commitment and contribution to the
growth of the Bank.

For and on behalf of the Board of Directors

Sd/- Sd/-

Ravimohan Periyakavil Ramakrishnan Kadambelil Paul Thomas

DIN:08534931 DIN:00199925

Chairman Managing Director & CEO

Date: 06^th September 2023
Place: Thrissur