Kolkata-based Bandhan Bank has a unique problem. The microlender turned commercial bank, like most other lenders, got the regulatory stick last year, but for completely different reasons. While several banks are facing the RBI wrath due to bad loans pile up, for Bandhan, it’s a case of non-compliance with regards to promoter shareholding. Though it did its bit buying mortgage lender Gruh Finance, it still didn’t please the central bank and the freeze on branch expansion (without prior approval) continues.
Bandhan’s promoter and MD Chandrasekhar Ghosh is now considering an offer-for-sale to pare stake to 40 per cent and get started on expanding the business. Last year, it sought a regulatory nod to open 17 branches — expected to be opened by June. However, with nearly 1,000 branches already — nearly matching India’s fourth largest private lender Yes Bank — Ghosh says he may not be aggressive on adding more branches. This decision appears prudent, particularly considering Yes Bank’s scenario, where only 30 per cent of branches are profitable!
Meanwhile, micro loans continue to be its mainstay accounting for about 86 per cent of the loan book, though it is expected to fall to 75 per cent in the next three years. And notwithstanding the restrictions, the bank continue to surprise shareholders reporting a 68 per cent increase in net profit for the quarter ended March, 2019 at `651 crore. “Bandhan Bank delivered a stellar set of numbers... on all fronts – asset quality, AUM growth, profitability and margin,” noted brokerage Arihant Capital adding that asset quality continued to improve as gross bad loans declined to 2 per cent and even as provision coverage ratio was steady at 72 per cent.
Bandhan had a relatively small exposure of `385 crore to troubled IL&FS, which it has fully provided for, but the bitter experience appears to have the left the bank once-bitten-twice-shy with Ghosh ruling out any large ticket financing in the near future. According to ICICI Direct, higher revenue from processing fees and others led to 90.7 per cent annual growth in other income. “Given the pace of business growth, we are valuing the stock at 30x of FY21 earnings per share of the merged entity,” it noted.