Analysis | Bandhan Bank Q4 numbers put pressure on its books; the worst is not over yet

Bandhan Bank could see pressure at a higher level in the next two years before things get better, given the impact of the second wave of COVID on small lenders, which make up the bulk of the bank’s customer.
Analysts were expecting signs of depression in Bandhan Bank’s books in Q4 primarily from Assam mortar. The bank’s report for the January-March quarter confirms that concern. Rs 1,930 crore was canceled in the fourth quarter, most of which are microloans. If it were not for these cancellations, the assets that were not fully developed (NPAs) would have been much higher.

As such, bad loan numbers continue to be higher this quarter at 6.8 percent (GNPA) compared to 7.1 percent in the previous quarter (proforma basis). Proforma refers to bad loans that include part of the loans affected by a previous High Court order. Total non-performing assets increased to 3.5 percent from 2.4 percent in the previous quarter. The bank’s supply chain (PCR) rate has dropped from 66.2% in Q3FY21 to 48.5% in Q4. None of these numbers look right at the bank in Q4.

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What has caused the massive shutdown with top NPAs? One of the most painful points in the fourth quarter is Assam where local law enforcement law is causing significant damage in some way. The law is not really aimed at banks but MFIs. However, this law would have an impact on banks and credit bureaux and the conduct of payments often has problems during those events and the associated political risks.

Bandhan should be vigilant ahead of ongoing property levels, especially until clarity on Assam law is clarified. Bandhan Bank is the largest lender in the state and the efficiency of the group when it dropped from 88% to 83% in the March quarter compared to the December quarter, according to reported figures. Provisions almost doubled in Q4 to Rs 1,594 crore from last quarter and against Rs 1,068 crore in Q3.

“Well, we all know that the quality of Bandhan Bank’s assets will be hit hard by its presence in West Bengal and Assam. Property pressure will remain high in the first quarter and will require more provision from the GNPA, ”said Jyoti Roy, senior analyst at Angel Broking. “PCR dropped from 66.2% in Q3 of FY21 to 48.5% in Q4. So the bank will need to strengthen the PCR, ”said Roy.
The five-year-old bank derives its power from very young customers where it has a level of trustworthy customers.

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The bank does not call it a microcredit portfolio but an Emerging Entrepreneurs Business (EEB). In addition to pure microcredit, this section also includes small home loans and other small business loans. At the end of the December quarter, EEB loans were 60 percent in the bank, most similar to the previous quarter. The other two major chunks include mortgage loans and commercial bank loans.
By the end of Q4, more than 59 percent of Bandhan’s book were microloans or EEB loans. This portfolio needs a closer look. There is a healthy growth in development and deposits. Total development has grown by 21.2 percent YOY and 8.5 percent QoQ. The deposit amount increased by 36.6 percent YOY and 9.5 percent QoQ. These numbers are good compared to other central banks.
“Their growth has been more than industrial; MFI is an unsafe product, always dangerous, especially from COVID. I expect further pressure on the quality of the estate. Some central banks are at greater risk compared to major banks, ”said Siddharth Purohit, an analyst at SMC Global Securities.

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For Bandhan, Assam remains a major problem. But that alone will not be a concern for CEO Chandra Shekhar Ghosh and her team. The second wave of COVID could be catastrophic for the banking sector and Bandhan is no different. Bandhan provided well for the COVID panic but the unpredictable nature of the epidemic in this round is a major cause of danger. The consensus among analysts is that Bandhan can see stress at a higher level in at least the next two parts.

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