Bandhan Bank To Reduce Loan Disbursements To New Customers

Private sector lender Bandhan Bank Ltd will be cautious about growing its loan book in the current financial year, with fewer loans to new customers. Instead, the bank will focus on existing customers both for incremental lending and deposits, Chief Executive Officer CS Ghosh told BloombergQuint in an interview.

“We will be growing the book cautiously because of the uncertainties in the market right now. The disbursements to new customers are likely to be low. We see good opportunities in our current base of borrowers,” Ghosh said.

As on March 31, Bandhan Bank’s total loans rose to Rs 71,846 crore, up 60.46 percent year-on-year. The rise in the bank’s loan book was aided by the addition of Rs 18,124 crore worth housing loans from Gruh Finance, which completed its merger with the bank in January.

The bank’s deposit base has grown to Rs 57,082 crore in the same period, up 32 percent year-on-year. The low-cost current account savings account deposits rose to Rs 21,072 crore, up 19.36 percent from a year ago. As a share of total deposits though, CASA deposits fell to 36.84 percent as on March 31, from 40 percent a year ago.

Ghosh said the bank intends to grow deposits via its microfinance borrowers, who constitute only 5.75 percent of the outstanding deposit base. The bank will also look at lending more to these customers as they will need funds to grow their businesses, once demand returns.

Analysts are expecting the bank’s loan growth to reduce substantially in the current financial year, with a pick-up seen only in 2021-22. According to analysts at Kotak Institutional Equities, Bandhan Bank’s loan growth this financial year will be close to 5 percent, gradually improving to 13 percent a year later. Apart from the disruptions caused by the pandemic, the slowing growth is also due to the merger with Gruh Finance.

“Gruh Finance has historically grown at a much slower pace as compared to Bandhan, and hence the headline growth numbers in the medium term will be lower than seen in the past for Bandhan,” analysts at Kotak Institutional Equities said.

Bandhan Bank reported a 25.8 percent fall in its net profit of Rs 517.3 crore in the January-March quarter due to higher provisions. The bank set aside Rs 690 crore in provisions during the quarter to protect against the impact of the Covid-19 crisis. The bank’s net interest income, or core income from operations, rose 33.5 percent on a yearly basis to Rs 1,680 crore.

The bank offered a three-month repayment moratorium permitted by the Reserve Bank of India to nearly all its microfinance borrowers, as collections became difficult during the national lockdown. Among other segments, about 13 percent of the bank’s mortgage financing customers opted for the moratorium and 35 percent of small businesses opted for the three-month standstill.

Overall, 75 percent of the bank’s loan book of Rs 71,846 crore is under moratorium.

This, however, should not translate into higher delinquencies, the management said.

The bank’s gross non-performing assets fell to Rs 992.77 crore as on March 31, as compared to Rs 1,182 crore in the December quarter. As a share of advances, the bank’s gross NPA ratio at the end of the fourth quarter stood at 1.48 percent, lower than the 1.93 percent a quarter ago.

Sunil Samdani, chief financial officer, Bandhan Bank said that the bank expects repayments across the loan book to come back to normal after four to six weeks of the lockdown being lifted.

“The microfinance borrowers will bounce back quicker than the other borrowers. Our microfinance borrowers are mostly involved in agriculture and allied activities, which are all essential even under lockdown. Moreover, these borrowers are also not affected by the migrant labour issues,” Samdani said.

Amit Nanavati and Tanuj Kyal, analysts at Nomura, see the bank’s reliance on microfinance as a key uncertainty in future growth.

“Uncertainty in its MFI book is too high, in our view, with risks around an increase in moratorium, collection challenges with possible political intervention and risk of ever-greening masking the underlying problem. We hence find it difficult to fundamentally evaluate at this point and capture the heightened risks in our valuation multiples,” Nanavati and Kyal said.

Speaking about Bandhan Bank’s ownership structure, which has been the subject of some regulatory action, Samdani said that the holding company currently holds 61 percent stake in the bank, as compared with the regulatory requirement of 40 percent or below.

“We have been reading in the press that the Reserve Bank of India is considering doing away with the holding company structure. If that happens, then the promoter shareholding can be brought down to 24.9 percent through a reverse merger. We are seeking some more time from the regulator to ensure compliance with the ownership guidelines, as the current environment is not suitable for a stake sale,” Samdani said.