Bandhan Bank Limited — Q3 FY25 earnings call

Call held 31 Jan 2025

Management summary

Bandhan Bank faced a challenging Q3 FY25 characterized by elevated stress in the microfinance (EEB) segment, leading to higher slippages and a significant technical write-off. Despite these headwinds, the bank is aggressively pivoting toward a 'Bandhan 2.0' strategy, focusing on increasing the secured loan mix (now 49%) and diversifying geographically. Management remains committed to a 2% RoA target by balancing yield moderation with improved credit costs and operational efficiencies.

Highlights

  • Net Profit (PAT) reported at ₹426 crores for Q3 FY25, impacted by elevated provisions and one-off items.

  • Gross Advances grew 14% YoY to ₹1.32 lakh crore; Secured book now constitutes 49% of total advances.

  • Total Deposits increased 20% YoY to ₹1.41 lakh crore, significantly outpacing credit growth.

  • Net Interest Margin (NIM) moderated to 6.9% in Q3 from 7.4% in Q2, driven by a shift toward secured assets and higher slippages.

  • Gross NPA stood at 4.7% with Net NPA at 1.3%; Bank performed a technical write-off of ₹1,266 crores in the EEB portfolio.

  • One-off gains included ₹538 crores from CGFMU payout and ₹52 crores from the Assam government relief scheme.

  • Operating expenses included a one-time ₹166 crore charge due to a change in ESOP accounting policy.

  • CASA ratio stood at 32%, with CASA deposits growing 6% YoY to ₹44,735 crores.

Concerns

  • Elevated MFI Sector Stress

Key financials

2 periods

Headline

  • Net Interest Income
    ₹2,830 Cr
    YoY +12% QoQ -4%
  • NIM
    6.9%
    QoQ -0.5%
  • Gross NPA
    4.7%
  • CASA Ratio
    32%
  • CRAR
    16.1%
    QoQ +0.5%

9M

  • Return on Assets
    1.8%

What they filed

Q1 FY27: revenue up 2.8%, net profit up 34.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue5,500 5,479 5,434 5,476 5,354 −3%5,431 −1%5,428 −0%5,631 +3%
Net profit937 426 318 372 112 −88%206 −52%534 +68%502 +35%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Emerging Entrepreneurs Business (EEB)
    ₹56,118 Cr Portfolio Value-3% YoY Growth₹1,196 Cr Slippages
  • Non-EEB (Retail/Housing/Commercial)
    30% YoY Growth95% Retail Asset Growth38% Commercial Banking Growth

Guidance & targets

Market Share

  • Secured Loan Mix Market Share · by FY27 · High confidence 55%+
    We endeavored to achieve a secured mix of 55% plus by FY27.

    — Partha Pratim Sengupta, MD and CEO

Margin

  • NIM Band Margin · FY25 · Medium confidence 7% to 7.5%
    NIM was stable at 7.3%, which is within our guided range of 7% to 7.5% for this financial year.

    — Rajeev Mantri, CFO

Profitability

  • Return on Assets (RoA) Profitability · Medium Term · Medium confidence 2%
    So, these three steps actually will give me an ROA of around 2%. So, that's what we are aiming.

    — Partha Pratim Sengupta, MD and CEO

Other

  • Overall Credit Cost Other · FY26 · Medium confidence 2%
    our credit cost expectation in the near future will be around 2% overall for the portfolio

    — Rajeev Mantri, CFO

  • Credit Cost (Secured Shift) Other · by FY27 · Medium confidence 1.5% to 1.6%
    by FY27 with the shift in secured, I think we expect it to be between 1.5% to 1.6%.

    — Rajeev Mantri, CFO

Risks & concerns

  • Elevated MFI Sector Stress

    high

    EEB slippages rose to ₹1,196 crores from ₹752 crores QoQ, reflecting industry-wide headwinds.

    Both acknowledged

  • NIM Compression

    medium

    Shift toward lower-yielding secured assets and higher cost of funds is expected to continue moderating NIMs.

    Analyst acknowledged

  • Geographic Concentration in West Bengal

    medium

    West Bengal still contributes 23% of advances and 40% of deposits, though diversification is improving.

    Management acknowledged

Areas of evasion (1)

  • Specific guidance for Q4 slippages was avoided, instead focusing on the 'reversing trend' in SMA-0.

Q&A highlights

2 direct
EEB Portfolio Growth vs. Secured Strategy Direct
It is not a reduction in the EEB book quantum-wise... if I grow 100 in EEB, I will grow 300 in the other segments.

Clarifies that the bank isn't exiting microfinance but diluting its concentration by growing other segments much faster.

Asked by Hardik Shah, ICICI Securities

MFI Guardrails and Indebtedness Rules Direct
The industry is still doing 3 plus 1, but we are doing 2 plus 1... the industry is giving a DPD of 60 days whereas we are taking it as a 30-day.

Highlights Bandhan's more conservative risk management approach compared to industry peers in the stressed MFI sector.

Asked by Roshini, CLSA

Slippage Outlook and SMA Trends Partial
Slippage still a matter of concern... But the trend is reversing. That trend is also we are witnessing. So, we are expecting Q1 of next financial year would be probably a much, much lower slippage.

Management admits current slippage levels are high but points to improving SMA-0 buckets as a leading indicator of recovery.

Asked by Puneet, Macquarie Capital

2 min read 6 chapters

Detailed narrative

Strategic Pivot to 'Bandhan 2.0'

Under the new leadership of MD & CEO Partha Pratim Sengupta, the bank is accelerating its transition from a microfinance-heavy institution to a diversified universal bank. A key pillar of this 'Bandhan 2.0' strategy is increasing the secured loan mix from the current 49% to over 55% by FY27. This shift involves aggressive growth in housing loans, gold loans, and commercial vehicle financing, while maintaining a more calibrated, 'secular' approach to the microfinance (EEB) book.

Asset Quality Headwinds in Microfinance

The EEB portfolio faced significant stress this quarter, with slippages rising to ₹1,196 crores. Management attributed this to industry-wide headwinds and elevated risks in the MFI segment. To address this, the bank implemented a technical write-off of ₹1,266 crores and introduced stricter 'guardrails,' such as a 2+1 lender rule and a 30-day DPD cutoff for new lending, which is more conservative than the industry standard.

NIM Compression and Yield Dynamics

NIM moderated to 6.9% in Q3 FY25, down from 7.4% in the previous quarter. This compression was driven by two primary factors: a deliberate shift in the product mix toward lower-yielding secured assets and the impact of higher slippages. Management expects NIMs to remain in the 7.0% to 7.5% range for the full year, acknowledging that the transition to a universal bank model naturally leads to lower but more stable margins.

One-off Items Impacting Financials

The quarter's results were heavily influenced by several non-recurring items. On the positive side, the bank booked ₹538 crores from a CGFMU claim payout and ₹52 crores from the Assam government. However, these were offset by a ₹166 crore one-time expense related to ESOP accounting changes and ₹1,376 crores in total provisions, which included ₹336 crores specifically linked to the technical write-offs.

Liability Franchise Strength and Diversification

Bandhan Bank continues to demonstrate a robust ability to raise deposits, with total deposits growing 20% YoY to ₹1.41 lakh crore. The bank is consciously reducing its reliance on bulk deposits to focus on granular retail deposits, which now make up 69% of the total. Geographic diversification is also progressing, with the share of advances in East and North East regions dropping from 53% in FY22 to 39% this quarter.

Operational Transformation and Efficiency

Management announced the formation of several new specialized units to drive future growth and efficiency. These include a Transformation Management Team, a Digital and Transaction Excellence Unit (DTEU), and a Market Intelligence Team that uses AI/LLMs to monitor commercial borrowers. These initiatives aim to improve underwriting standards, enhance customer experience, and eventually lower the cost-to-income ratio as productivity gains materialize.

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