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 on March 31, 2020.

Q4 2020 Updates

Financial Results & Highlights

Consolidated Financials (In Crs)
  Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 3346.47 2220.32 50.72% 3075 8.83% 12435 7706.4 61.36%
PBT 1521 1153.2 31.89% 1263.87 20.34% 5446.56 3748 45.32%
PAT 517.28 650.87 -20.52% 731.03 -29.24% 3023.73 1951.5 54.94%

Detailed Results

    1. Deposit portfolio grew 32.04% YoY and 3.96% QoQ.
    2. Loan portfolio (on book + off book) grew 60.46% YoY.
    3. CASA grew 19.36% YoY.
    4. CASA ratio at 36.84% (excluding GRUH deposits 37.70%) against 34.31% QoQ.
    5. Added 11.0 lakh customers during the quarter with a total customer base at 2.01 crore as on March 31, 2020.
    6. Capital Adequacy Ratio (CRAR) at 27.43%; Tier I at 25.19% and CET 1 at 25.19%.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    12. Net Interest Margin (annualized) for the quarter ending March 31, 2020 stood at 8.13% (merged) against 7.91% on December 31, 2019.
    13. 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.
    14. 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.
    15. Gross NPAs as on March 31, 2020, is at ₹993 crores (1.48%) against ₹820 crores (2.04%) as on March 31, 2019 (standalone).
    16. Net NPAs as on March 31, 2020 is at ₹389 crore (0.58%) against ₹228 crore (0.58%) as on March 31, 2019 (standalone).
    17. Deposits from regions outside its core geographies have witnessed steady growth.
    18. 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.
    19. 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.
    20. 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.
    21. 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

  1. 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.
  2. Management says that about 50% of their customers are in agriculture and allied activities. Their outlook remains strong even in this environment.
  3. 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.
  4. Management has calculated the COVID provision based on two factors:
    1. Credit performance and profile of customers across industries
    2. Prior experience of the bank while dealing with severe events like this
  5. 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%.
  6. 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%.
  7. 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.
  8. 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.
  9. Other transportation in the microfinance sector basically pertains to auto-rickshaw and taxi.
  10. 43% of the company’s business is in the green zone. 30-33% is in the orange zone and 24% in the red zone.
  11. 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.
  12. 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%.
  13. 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.
  14. 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%.
  15. Management has built tech-enabled solutions to fasten the collection mechanism at this juncture.
  16. 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.
  17. Management expects the microfinance business to be the first one to come back strongly.
  18. 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.
  19. 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.

Analyst’s View

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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