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    Bandhan Bank Limited

    BANDHANBNKGood
    Financial Services·25 Oct 2024
    Management Summary

    Bandhan Bank delivered a strong bottom-line performance in Q2 FY25 despite headwinds in the microfinance (EEB) sector. The bank is successfully executing a strategic pivot toward secured lending, with retail and commercial segments showing robust growth. While asset quality in the microfinance book remains under pressure with elevated slippages expected to continue into Q3, management maintains its full-year credit cost and growth guidance, banking on a recovery in Q4.

    Highlights

    8

    • Net Profit (PAT) grew 30% YoY to ₹937 crores, with H1 FY25 PAT at ₹2,001 crores.

    • Gross Advances reached ₹1.31 lakh crores, up 21.4% YoY, driven by a 92% YoY surge in Retail Assets.

    • Total Deposits stood at ₹1.43 lakh crores, growing 27.2% YoY, outpacing credit growth.

    • Net Interest Margin (NIM) remained healthy at 7.4% for the quarter and 7.5% for H1 FY25.

    • Asset quality saw marginal deterioration with Gross NPA at 4.7% (up from 4.2% QoQ) due to microfinance stress.

    • Secured loan book now constitutes 47% of total advances, up from 42% in March 2024.

    • CGFMU audit completed with a final assessed payout of ₹1,231 crores; ₹543 crores to be recognized as 'Other Income' upon settlement.

    • New MD & CEO, Mr. Partha Pratim Sengupta, appointed to take charge on November 1, 2024.

    Concerns

    1

    • Microfinance (EEB) Sector Stress

    Key financials

    Single quarter

    06 metrics
    1. 01Net Interest Income₹2,948 Cr+21%YoY
    2. 02NIM7.4%
    3. 03PAT₹937 Cr+30%YoY
    4. 04Gross NPA4.7%
    5. 05CASA Ratio33.2%0%QoQ

    Segment breakdown

    YoY GrowthQoQ Growth
    EEB (Microfinance)11%-4%
    Retail Assets92%21%
    Commercial Banking40%14.8%
    Housing Finance17%7.5%
    Heatmap· 2 shared metrics

    Guidance & targets

    5
    CategoryTargetPriority
    Revenue
    Overall Advances Growth
    18% (+/- 1%)
    		High
    Revenue
    EEB Segment Growth
    10% to 12%
    		Medium
    Margin
    Net Interest Margin (NIM)
    7% to 7.5%
    		High
    Profitability
    Credit Cost
    1.8% to 2.0%
    		Medium
    Profitability
    EEB Specific Credit Cost
    3% plus
    		Medium

    Risks & concerns

    5
    RiskSeverity

    Microfinance (EEB) Sector Stress

    Over-leveraging and overheating in the industry led to a ₹548 crore QoQ increase in the EEB DPD pool (SMA 0, 1, 2). — Both acknowledged

    high

    Elevated Slippages in Q3

    Management explicitly stated that slippages are expected to remain elevated in the upcoming third quarter. — Management acknowledged

    medium

    Geographic Concentration in West Bengal

    While WB contributes 40% of deposits and 23% of advances, the bank is actively diversifying into North, West, and South regions. — Management acknowledged

    low

    Areas of Evasion(2)

    • Specific ROE for the new retail segment (stated it's too early to break even/mature).
    • Specific state-wise percentage exposure for the top 5 states in EEB (provided names but not all percentages immediately).

    Q&A highlights

    3

    “Q3, our slippages will remain elevated... But by the fourth quarter, we would believe that the market would start showing some signs of positivity returning back.”

    Management acknowledges that the microfinance stress hasn't peaked yet and will impact the next quarter significantly.

    asked by Piran Engineer, CLSA

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Pivot to Secured Lending

    Bandhan Bank is aggressively diversifying its loan book to reduce reliance on unsecured microfinance. The secured book now accounts for 47% of total advances, up from 42% in March 2024. This shift is led by the Retail Assets segment, which grew 92% YoY, and Commercial Banking, which grew 40% YoY. Management aims to continue this trend to ensure sustainable growth and contain portfolio risks.

    02

    Microfinance Headwinds and Asset Quality

    The microfinance (EEB) sector is facing significant stress due to over-leveraging and industry-wide overheating. Bandhan's EEB slippages rose to ₹752 crores in Q2 from ₹543 crores in Q1. The overall EEB DPD pool (SMA 0, 1, 2) stands at ₹1,984 crores, or 3.3% of EEB advances. Management expects stress to persist in Q3 but anticipates a turnaround in Q4 FY25.

    03

    CGFMU Audit Resolution

    The in-depth CGFMU audit has been completed with positive outcomes. The NCGTC assessed the total claim payout at ₹1,231 crores as of March 31, 2024. After accounting for previous settlements and recoveries, approximately ₹543 crores will be credited to the Bank's P&L as 'Other Income' upon final settlement. This provides a significant one-time📎 buffer to earnings.

    04

    Deposit Franchise Strength

    Deposits grew by 27.2% YoY to ₹1.43 lakh crores, significantly outperforming the 21.4% growth in advances. Retail deposits (CASA + Retail TD) remain the backbone of the franchise at 68% of total deposits. Despite a competitive market, the CASA ratio remained stable QoQ at 33.2%, and the bank successfully reduced geographic concentration, with West Bengal's share of deposits falling to 40% from 44% a year ago.

    05

    Leadership Transition

    The bank announced the appointment of Mr. Partha Pratim Sengupta as the new MD & CEO for a three-year term, effective November 1, 2024. Mr. Sengupta brings nearly 40 years of experience from SBI and IOB. Interim MD Ratan Kumar Kesh will work closely with him to ensure a smooth transition into 'Bandhan Bank 2.0'.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.