About the Company
Bandhan started in 2001 as a not-for-profit enterprise that stood for financial inclusion and women empowerment through sustainable livelihood creation. It turned into an NBFC a few years later but the core objective remained financial inclusion. When Bandhan Bank started operations on August 23, 2015, it was the first instance of a microfinance entity transforming into a universal bank in India. On the day of launch itself, Bandhan Bank started with 2,523 banking outlets. It offers world-class banking products and services to urban, semi-urban, and rural customers alike. In the last few years of operations, Bandhan Bank has spread its presence to 34 of the 36 states and union territories in India with 4,559 banking outlets serving 2.01 crore customers, as of March 31, 2020.
Q2 FY21 Updates
Financial Results & Highlights
|Consolidated Financials (In Crs)|
|Q2FY21||Q2FY20||YoY %||Q1FY21||QoQ %||H1FY21||H1FY20||YoY|
- The revenues for Q2 grew 17% YoY. PAT fell 5% YoY mainly due to higher provisions of Rs 395 Cr vs Rs 145 Cr last year.
- The company saw its highest ever quarterly PBT in Q2.
- Deposit portfolio grew 34.4% YoY and 9.1% QoQ.
- Loan portfolio (on book + off book + TLTRO) grew 19.4% YoY.
- CASA grew 56.2% YoY.
- CASA ratio at 38.2% against 37.1% QoQ.
- Added 5.02 lakh customers during the quarter with a total customer base at 2.08 crore as on Sep 30, 2020.
- Capital Adequacy Ratio (CRAR) at 25.7%; Tier I at 22.2%.
- During the quarter the Bank has taken accelerated additional provision on standard advances amounting to Rs 300 Cr. With this provision and additional Standard Assets provision that Bank is carrying in Micro banking portfolio total additional provision in books stands at Rs 2096 Cr.
- Net Interest Income (NII) for the quarter grew by 25.8% YoY to Rs 1,923 Cr as against Rs 1,529 Cr in the corresponding quarter of the previous year.
- Non-interest income grew by 6.1% YoY to Rs 381.8 Cr for the quarter against Rs 360 Cr in the corresponding quarter of the previous year.
- Operating Profit for the quarter increased by 24.6% YoY to Rs 1,627 Cr against Rs 1,307 Cr in the corresponding quarter of the previous year.
- Net Interest Margin (annualized) for the quarter stood at 8% (merged) against 8.2% on Sep 30, 2019.
- Total Advances (on book + off book + TLTRO) grew by 19.4% YoY to Rs 76,615 Cr at the end of Q2FY21 against Rs 64,185 Cr in the previous year, and 3.1% QoQ against Rs 74,330 crores in the previous quarter.
- Total Deposits increased by 34.4% YoY to Rs 66,128 Cr in Q2 as compared to Rs 49,195 Cr in the previous year, and 9.1% QoQ against Rs 60,610 Cr in the previous quarter.
- Gross NPAs as on Sep 30, 2020, is at Rs 874 Cr (1.2%) against Rs 1064 Cr (1.8%) last year.
- Net NPAs as on Sep 30, 2020 is at Rs 262.5 Cr (0.4%) against Rs 337 Cr (0.6%) last year.
- Cost to income ratio was at 29.4% in Q2 vs 30.8% last year.
- The retail deposit to total deposits was 77%.
- EEB collection efficiency had reached 89% of value and 94% of customers at the start of Oct.
- The average LTV in the Mortgage segment was at 67%.
- The cost of funds was at 6.2% in Q2.
- 142 new locations opened in Q2.
Investor Conference Call Highlights
- September overall banker collection efficiency has come at 92% in the overall bank.
- Collection efficiency in micro banking has come at 91%.
- In October, 95% of Microcredit customers have started repaying.
- The bank plans to open up 574 new locations in FY21.
- Another 500 outlets are planned in housing finance business in FY21.
- The company is developing a new 5 year development plan. According to it the EEB (Emerging Entrepreneurs Business) or the microcredit business should be at 30% of overall business for the bank. And all of the bank’s existing offerings like different loans, deposits, etc should be enabled through its microcredit branches.
- 2nd part of the plans is to grow the housing finance business to 30% of overall business. The idea is to offer 2 types of loans, a micro housing loan and a prime housing loan.
- 3rd part is the commercial banking business which should come to 30% of business. This business should help promote existing customers from micro credit which is an individual loan to MSME loan.
- The 4th part will be to develop personal, vehicle loans which are namely consumer loans. This should be at 10% of business.
- The management is not concerned with the fall in average deposits for microfinance customers from Rs 2100 to Rs 1600 in last 6 months as it is indicative of the current uncertain times that the whole country is going through.
- Instead of conducting a big group meeting of 20-25 people, the collection agents are instead going to their individual homes in order to prevent large gatherings.
- Micro housing will go under the EEB division while housing finance will be going on with affordable housing. Average ticket size is near 9-10 Lacs and is steadily increasing.
- The company will aim to preserve current yields as it looks to implement its 5 year plan and see the product mix evolve.
- The management has clarified that prime housing will have lower yield but micro housing will come with higher yield.
- Collection efficiency from WB was at 90% and from rest of India was at 91%.
- A big stumbling block in the way of collections is train services not running as before. If train services normalised, collection efficiency would have risen 5% according to management.
- The company is now allowing top up loans and has relaxed its one loan policy due to the current economic environment. It disbursed a total of 21,27,817 new loans in Q2.
- The percentage of top-up loans currently stands at 7.6% of the total EEB book.
- In terms of customer base, around 12.3% of EEB customer set have taken top up loans.
- The bank will not be charging any interest on interest for any customer and any missing payments will only push back the payment schedule.
- The company started top up loans as Bandhan was the only one in the industry doing the 1 loan only policy and thus its customers would go to other players for top up loans.
- The same considerations done when evaluating a customer at the time of a fresh loan is done for top up loan as well.
- The bank has a policy to never provide fresh loans to preclose existing loans.
- The management reiterated that the end goal for high vintage micro banking customers is to move them into the MSME segment. Since the bank has had a long association with such customers and has long payment history, it has better information on credit and risk position of such a customer.
- The bank’s main advantage in its home region of East India is the deep distribution network and the 10 year long history which has helped the bank acquire and retain quality customers.
- The bank has written off Rs 109.21 Cr of micro loan book in Q2.
- Collection efficiency in Assam has reached 87%.
- 95-96% of borrowers have started operating their businesses.
- The average ticket size of top up loans in H1 was at Rs 35,000.
- 76% of customers are making full payments on schedule.
- The bank has reduced the term deposit rate by almost 150 basis points in H1 and it will reprice it in a quarter or more.
- In savings deposits, 63% of customers have deposits of greater than Rs 1 Lac.
- Total fee income for Q2 was at Rs 382 Cr.
- MFI AUM breakup for top 4 states is 47% for WB, 17% for Assam, 9% for Bihar, & Maharashtra 3-5%.
- The company operates in 3 verticals for commercial banking. In one vertical the ticket size is at Rs 2 Cr or more where the bank competes with NBFC and banks. Another has a ticket size of Rs 30 Lacs for smaller SMEs and the last one has ticket size of Rs 3-3.5 Lac.
Bandhan Bank has aggressively grown its business over the last few years. The company had a decent quarter with good YoY growth in deposits and loans. Management is confident that the business is back to normalcy and is now looking to implement a new 5-year development plan. The company is seeing good traction in mortgage and commercial lending businesses. It is also confident of leveraging its existing customer set effectively to maintain its growth rate and upscale old MFI customers into SME loans. There are still a lot of uncertainties due to external events and the internal structure of the business is putting pressure on the stock price. It remains to be seen how the story plays out in the medium term and whether things will come back to normalcy as reported by the management. Nonetheless, given its consistent growth momentum in recent years and its rapidly expanding customer set, Bandhan Bank remains an interesting company to keep track of the microfinance and small finance banking industry in India.
Q1 FY21 Updates
Financial Results & Highlights
|Consolidated Financials (In Crs)|
|Q1FY21||Q1FY20||YoY %||Q4FY20||QoQ %|
- The revenues for Q1 grew 15% YoY. PAT fell 21% YoY mainly due to higher provisions of Rs 849 Cr vs Rs 125 Cr last year.
- Deposit portfolio grew 35.3% YoY and 6.18% QoQ.
- Loan portfolio (on book + off book) grew 17.68% YoY.
- CASA grew 47.3% YoY.
- CASA ratio at 37.08% (excluding GRUH deposits 37.83%) against 36.84% QoQ.
- Added 2.13 lakh customers during the quarter with a total customer base at 2.03 crore as on June 30, 2020.
- Capital Adequacy Ratio (CRAR) at 26.45%; Tier I at 23.22%.
- During the quarter the Bank has taken accelerated additional provision on standard advances amounting to Rs 750 Cr. With this provision and additional Standard Assets provision that Bank is carrying in Micro banking portfolio total additional provision in books stands at Rs 1,769 Cr.
- Net Interest Income (NII) for the quarter grew by 14.98% YoY to Rs 1,811 Cr as against Rs 1,575 Cr in the corresponding quarter of the previous year.
- Non-interest income grew by 16.92% YoY to Rs 387 Cr for the quarter against Rs 331 Cr in the corresponding quarter of the previous year.
- Operating Profit for the quarter increased by 16.81% YoY to Rs 1,584 Cr against Rs 1,356 Cr in the corresponding quarter of the previous year.
- Net Interest Margin (annualized) for the quarter stood at 8.15% (merged) against 8.13% on June 30, 2020.
- Total Advances (on book + off book + TLTRO) grew by 17.68% YoY to Rs 74,331 Cr at the end of Q1FY21 against Rs 63,164 Cr in the previous year, and 3.46% QoQ against Rs 71,846 crores in the previous quarter.
- Total Deposits increased by 35.3% YoY to Rs 60,610 Cr in Q1 as compared to Rs 44,796 Cr in the previous year, and 6.18% QoQ against Rs 57,082 Cr in the previous quarter.
- Gross NPAs as on June 30, 2020, is at Rs 1007 Cr (1.43%) against Rs 1020 Cr (1.7%) last year.
- Net NPAs as on June 30, 2020 is at Rs 336 Cr (0.48%) against Rs 348 Cr (0.59%) last year.
- Cost to income ratio was at 27.9% in Q1 vs 28.9% last year.
- The retail deposit to total deposits was 77.7%.
- Daily collection efficiency had reached 70% at the start of July.
- In Micro banking, additional loans were given to only 5% of existing customers.
- The segment saw asset growth of 21.2% YoY and borrower base growth of 13.82% YoY to 11.2 million.
- Non-Micro Banking Asset growth was at 11.9% YoY.
- The average LTV in the Mortgage segment was at 67%.
- The cost of funds was at 6.9% in Q1.
- No new locations opened in Q1.
Investor Conference Call Highlights
- The management expects collection efficiency to improve going forward and to reach pre-COVID levels by September.
- Maharashtra collections were at 54%.
- Other retail loans grew greater than 50% YoY which has been attributed to a rise in gold loans. The company is currently offering this service in more than 500 branches vs less 100 branches a year ago.
- Overall disbursement in micro banking was at Rs 45000. The top-up loans in this segment were at an average of Rs 35000.
- In the microcredit portfolio, 70-75% is in West Bengal, Assam, Tripura, and Bihar.
- The SEL portfolio remains unsecured and is now at Rs 2000 Cr.
- The company expects around 67-68% of customers to be paying their dues in June.
- The management does not expect any big changes in opex going forward.
- The NPAs in the mortgage has indeed gone up marginally as collection efficiency in this segment has reduced slightly from 87% in April to 85% in June.
- PSLC income in Q1 was at Rs 119 Cr.
- Collection efficiency has been calculated considering the total customer set has not applied for the moratorium.
- Credit cost in terms of the NPAs is at 1.37% as of the 30th of June, which is 1.3% of the outstanding loan portfolio.
- The management admits that the portfolio will be considered stabilized once collection efficiency goes above 90% in the mortgage category.
- Around 70-75% of the total provision is towards microfinance.
- The management has stated that Q1 and Q2 have been a muted quarter historically in terms of disbursement.
- Historically the company has maintained a growth rate in micro banking of 30% YoY. Around 10% of this 30% comes from new customers and the rest 20% comes from existing customers. But in the current year, new customer acquisition has been slow and the company is looking to boost the growth using the existing customer set.
- They have added extra field officers as they were not having full-fledged group meetings. These extra field officers can be used to mitigate industry attrition which is currently at 8-9%. This new worker group can also be used as ready staff available with experience to be posted in the new branch to start that business. Typically, the company adds 8-10% in the employee strength each year.
- On the whole, the core business models of micro banking and mortgage remain unchanged for the company.
- The lending for additional loans to existing customers is given at a 1% high rate of 18.85%.
- The labour migration does not seem to have affected the company a lot as most of the borrowers have locally entrenched families and are running local businesses and the primary borrower is not involved in migratory labour activities.
- The company has seen that the number of customers opting for a moratorium under phase 2 is at least 20% lower than the phase 1.
- Collection efficiency has not dropped for customers who have restarted their repayment activities.
- 50% of MFI borrowers have a single loan only from Bandhan. The company feels that there are a lot of cross-selling opportunities in this customer set for other loans like MSME, etc.
- 30% of MFI borrowers have a loan from another entity. The company is also looking to consolidate here so that it becomes the first choice for borrowing in this customer set for other loans like housing, etc.
- According to the management, portfolio buyout under IBPC in the mortgage is more of a liquidity management exercise as the company has a lot of priority sector loans. The company issues it at a low grade and to deploy that money because reverse repo today has come down substantially. Between selling and buying, the company makes a spread of 100+ bps.
- Disbursements in the mortgage have come back to 77% of pre-COVID levels. In June it was at Rs 240 Cr compared to Rs 300 Cr in Feb.
- The management has stated that it would like to merge the holding company with the bank to solve the issue of bringing the promoter holding down to a regulatory limit of 40%.
- The management has stated that any customers that have not made their payments are automatically considered to be under moratorium.
- There shouldn’t be any impact of the upcoming state elections on the customer set and operations in those particular states.
- The company has given out new business loans to roughly 5% of customers.
- Around 44.4% of loans are taken for agriculture and allied activities. Around 30.3% is from food processing and small retail store. Most of the new business loans in rural areas in the above spaces which have not been affected too much from the lockdown.
- Close to 30% of borrowers have not made any payments in the moratorium period at the end of June. This is reflected in the fact that collection efficiency for June was at 68%.
- The NBFC-MFI portfolio has reported 100% collections for the month of June. This is mostly due to easy liquidity available to such entities under NABARD and the TLTRO option.
- The management expects to reach 90% in collections by September.
Bandhan Bank has aggressively grown its business over the last few years. The company had a decent quarter with god YoY growth in deposits and loans. Management is confident that the business would come back to normalcy by September. The company is seeing good traction in mortgage and NBFC businesses. It is also confident of leveraging its existing customer set effectively to maintain its growth rate and mitigate the fall in new customer acquisition from COVID-19. There are still a lot of uncertainties due to external events and the internal structure of the business is putting pressure on the stock price. It remains to be seen how the story plays out in the medium term and whether things will come back to normalcy as reported by the management when the moratorium period ends. Nonetheless, given its consistent growth momentum in recent years and its rapidly expanding customer set, Bandhan Bank remains an interesting company to keep track of the microfinance and small finance banking industry in India.
Q4 2020 Updates
Financial Results & Highlights
|Consolidated Financials (In Crs)|
|Q4FY20||Q4FY19||YoY %||Q3FY20||QoQ %||FY20||FY19||YoY%|
- Deposit portfolio grew 32.04% YoY and 3.96% QoQ.
- Loan portfolio (on book + off book) grew 60.46% YoY.
- CASA grew 19.36% YoY.
- CASA ratio at 36.84% (excluding GRUH deposits 37.70%) against 34.31% QoQ.
- Added 11.0 lakh customers during the quarter with a total customer base at 2.01 crore as on March 31, 2020.
- Capital Adequacy Ratio (CRAR) at 27.43%; Tier I at 25.19% and CET 1 at 25.19%.
- COVID 19 related provision amounting to Rs. 690 crore. With this provision and additional Standard Assets provision that Bank is carrying in Micro banking portfolio total additional provision in books stands at Rs. 1000 crore.
- Net Interest Income (NII) for the quarter grew by 33.57% to ₹1,680 crore as against ₹1,258 crores in the corresponding quarter of the previous year.
- Non-interest income grew by 28.87% to ₹500 crores for the quarter ended March 31, 2020 against ₹388 crores in the corresponding quarter of the previous year.
- Operating Profit for the quarter increased by 31.83% to ₹1,521 crores against ₹1,154 crores in the corresponding quarter of the previous year.
- Net Profit for the quarter shrinks by 20.58% to ₹517 crores against ₹ 651 crores in the corresponding quarter of the previous year. In Q4 FY 20, The Bank has taken additional provision on standard assets on account of COVID 19 amounting to Rs 690 crore.
- Net Interest Margin (annualized) for the quarter ending March 31, 2020 stood at 8.13% (merged) against 7.91% on December 31, 2019.
- Total Advances (on book + off book) grew by 60.46% to ₹71,846 crores as on March 31, 2020 against ₹44,776 crores as on March 31, 2019, and 9.76% QoQ against ₹65456 crores as on December 31, 2019.
- Total Deposits increased by 32.04% to ₹57,802 crores as on March 31, 2020 as compared to ₹43,232 crores as on March 31, 2019, and 3.96% QoQ against ₹54,908 crores as on December 31, 2019.
- Gross NPAs as on March 31, 2020, is at ₹993 crores (1.48%) against ₹820 crores (2.04%) as on March 31, 2019 (standalone).
- Net NPAs as on March 31, 2020 is at ₹389 crore (0.58%) against ₹228 crore (0.58%) as on March 31, 2019 (standalone).
- Deposits from regions outside its core geographies have witnessed steady growth.
- Moratorium Update on Micro Finance Business: 95% of DSCs have been opened and are connected with borrowers to get the ground-level feedback. 79% of borrowers have an average deposit balance of ~ ₹3,070, which is equivalent to 4+ weekly installments. As per borrower feedback, the collection should normalize in about 4-6 weeks after lockdown is lifted.
- Moratorium Update on Mortgage Business: While the moratorium was offered to 100% of the customers, 87% of customers in value have paid installment in April. The balance 13% (largely self-employed) opted to conserve cash.
- Moratorium Update on SME Finance Business: Although the moratorium was offered to all customers, ~65% (in value) have paid installment in Apr’20. Customers opted to conserve cash. On account of travel restriction, many customers could not pay an installment in Apr’20.
- Moratorium Update on NBFC Business: NBFC-MFI in general wants to conserve cash as they have in turn given moratorium to customers. 20% + Average Capital Adequacy reported by NBFC–MFI in which Bank has exposure. NBFC-MFI seeking moratorium has placed deposits exceeding their Q1 FY 21 installments with the Bank.
Investor Conference Call Highlights
- Management admits that the environment is very uncertain at the moment because of COVID and related lockdown policies. Even when the lockdown is completely lifted, it will take at least 4 to 6 weeks for the retail segment to come back to normalcy.
- Management says that about 50% of their customers are in agriculture and allied activities. Their outlook remains strong even in this environment.
- The food processing industry forms about 20% of the book. 70% of the customer has been part of the essential goods business. Their profile is also very strong compared to other industries.
- Management has calculated the COVID provision based on two factors:
- Credit performance and profile of customers across industries
- Prior experience of the bank while dealing with severe events like this
- Management says that history suggests when the issue is the inability of the borrower to pay as the business gets impacted (like Fani cyclone in Orissa, GST & Demonetization), incremental losses have been in the range of 0.5% to 1%.
- However, when the issue is willingness or credit issues (like UP loan waiver & Assam crisis when borrowers were instigated not to pay), incremental losses have been in the range of 3% to 4%.
- Management believes that the current situation being a medical pandemic, falls under the case of the inability of the borrowers to pay, hence the loss would be limited.
- Management believes that it has taken a conservative stance on the current outlook and the total provision of INR 1000 Cr is appropriate for the current scenario.
- Other transportation in the microfinance sector basically pertains to auto-rickshaw and taxi.
- 43% of the company’s business is in the green zone. 30-33% is in the orange zone and 24% in the red zone.
- The company’s CD ratio or the loan-to-deposit ratio has gone up largely because of the merger. Post-merger, the entire liabilities were small deposits. And particularly this quarter it has moved up to 130% because of the excess liquidity that the company is maintaining. They have also taken refinance and increased liquidity.
- If the bank does not have to carry excess liquidity, the loan to deposit ratio will have to be in the range of 105% to 113%.
- Management states that the majority of their business is present in the eastern and north-eastern belt of India where the impact of COVID is muted compared to the rest of the part of the country. Hence, they believe the normal activity should come back in due course of time.
- Customers who are unique to Bandhan Bank form 50% of the total customers. Bandhan plus 1 more loan from other banks put together for 80% of total customers. Bandhan plus 2 loans take it 94%.
- Management has built tech-enabled solutions to fasten the collection mechanism at this juncture.
- 79% of the borrowers have cash in their savings bank account with the Bank. So, the bank had the option of taking payment from the borrowers through their savings account balance. However, they are loyal customers to the bank, so the management feels that it is prudent to take a long term view and help the customers to restart their operations soon after the lockdown ends.
- Management expects the microfinance business to be the first one to come back strongly.
- 96% of their offices are open. They are connecting with all the customers and the group to understand which model will suit them and what are they comfortable with.
- The deposit balances of the micro-banking customers, despite close to 7 weeks of lockdown have remained strong and stable. They have not seen depletion on the deposit balances of these customers.
Bandhan Bank has aggressively grown its business over the last few years. In Q4FY20, it maintained its growth in loans and added customers at a decent pace. However, COVID -19 impact can negatively impact their operations. Management is confident that the business would come back to normalcy in due course. They have halted collections for the moment as they want to give time to their customers to restart their business and pay the loans comfortably. The market is worried that they’re over-concentrated in the eastern and north-eastern parts of the country. Another concern is that the bank has been slow in diversifying into newer businesses, thereby remains dependent primarily on the micro-finance business. A lot of uncertainties due to external events and internal structure of the business is putting the pressure on the stock price. It remains to be seen how the story plays out in the medium term. But, Bandhan Bank remains an important company to keep a track on the microfinance business in India.
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