Bandhan Bank: In a league of its own

Bandhan Bank Q1FY2019 Results

Net Interest Income grew by 39.5% YoY to Rs 1037.2 crore backed by loan book growth of 52% YoY at Rs 32,590 crore. NIMs fell by 50bps on YoY basis from 10.8 in Q1FY18 to 10.3% in Q1FY19. PAT grew by 49.2% on YoY Basis backed by robust non-interest income growth & lower C/I ratio at 34.3%. Deposit portfolio grew 37% YoY at 30,703 crore. CASA grew 84% YoY at Rs 10,887 crore. GNPA & NNPA stood at 1.3% & 0.6% v/s 0.9% & 0.6% in Q1FY18 respectively. Capital Adequacy ratio for the quarter stood at 32.6% v/s 26.1% in Q1FY18

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Key insights and their implications

  • Advances grew by 52.4% YoY basis backed by the robust growth witnessed in the micro lending book of 44.8% from Rs 19320 crore in Q1FY18 to Rs 27970 crore in Q1FY19 (micro lending book comprises 85% of the loan book). Also higher priority sector lending (95% of advances as on FY18) resulting in income from selling PSLCs of 256 crore to be recognised over 4 quarters.
  • Deposits grew by 36.8% from 22439 crore in Q1FY18 to 30703 crore in Q1FY19, whereby the CASA also increased from 26.3% in Q1FY18 to 35.5% in Q1FY19 thus reducing the cost of funds.
  • Net Interest Income grew by 39.5% on YoY basis despite of advances growth of 52.4% YoY primarily due to the pressures on the yield recognised on the advances (Yield on advances fell by 130bps on a YoY basis) which was partially offset by fall of 50bps in the cost of the funds.
  • Cost to Income ratio reduced from 35.3% in Q1FY18 to 34.3% in Q1FY19 thus containing the operating expenses to average assets ratio below 4%.
  • GNPA increased by 40bps on YoY basis from 0.9% in Q1FY18 to 1.3% in Q1FY19 whereas the NNPA remained stable at 0.6%, thus reducing the credit cost from 1.4% in Q1FY18 to 0.8% in Q1FY19

Challenges faced by the company

  • A substantial number of Bandhan’s branches and DSCs is located in East and Northeast India. As a result of this concentration, the success and profitability of its overall operations may be disproportionately exposed to regional factors. These regional factors include, among others: (i) general economic conditions in this region, (ii) laws and regulations, (iii) increased competition specific to the geography, and (iv) other developments including political unrest, floods and other natural calamities. Adverse developments in any of the above factors would affect Bandhan more than they might affect banks with greater geographic diversity. 
  • Bandhan Bank’s business performance could suffer as a result of negative events affecting the overall microfinance industry (85% of the loan book). Also the microloans are not generally backed by collateral, they may pose a higher degree of risk than loans secured with physical collateral.

Bandhan Bank. (CMP: Rs.624, Market Cap: Rs. 74,342 crores, 4.34x FY21 P/Bv)

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