In my opinion, it’s not a relief.Management had cited that because of one year lock in for the promoter , he can not dilute the equity as required by sebi.sebi has therefore given it exemption of locking period.It essentially means that the promoter will HV to bring down his holding from 82%to 40% soon.
This is a management which is cost conscious & prudent, hope they won’t disappoint
I know that. Relief in the sense now contradictory governing rules are gone, many doors will be open to reduce stakes. Mngmnt is quite capable and honest. I know their work closely. Everything will be settled down very soon.
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Bandhan Bank Ltd
Highlights Of Q2 FY19 Results
Financials
Profit grew by 47 % to 484 Cr compare to 331 Cr last year same quarter
Company advances grew by 51 % 33,373 Cr which was 22111 Cr last year same quarter.
Deposit increase by 30 % or7517 Cr to 32,959 Cr from 25,442 Cr last year same quarter.
Retail deposit of total deposit is 82 % , CASA is 36.94 % , CA is 6.39 % of the total deposit.
NIM stood at 10.30 % for the quarter.
Cost to Income ratio has came down from 35.48 % to 33.18 % last year same quarter.
ROA 4.28 %
ROE 19.30 %
Gross NPA is in 1.29 % which was 1.26% in the last quarter
Net NPA is 0.69 % which was 0.64 % in the last quarter
Capital adequacy ratio was 32.6 % and Credit deposit ratio was 96.86 %.
Key Highlights
Company total banking outlet were 6,948 out of that 938 bank branches and 3010 door step service centers.
Company have 14.41 Mn customers , added 7,70,000 new customer added in the last quarter. Out of that 2.8 lakh new customer added in the bank branches and 4.5 lakh customer added in the micro credit bank.
Employee are 30,870 which was 25,648 last year same quarter.
Company net interest income grew by 55 % to1078 Cr which was 694 Cr last quarter.
Non-NII grew by 3 % to 230 Cr which was 223 Cr last year same quarter.
Company focus is in the credit part and looking into the micro credit segment where the micro credit portfolio in advances out of total advances it 87 % it was 88 % in last year.
Q&A
On Sep-17 company loan book was around 20,000 Cr and by the end of H!-18 company has cross from 20,000 Cr to 30,000 Cr , so is it possible to grow in similar way as company have grown last year specially in second half ?
Last year that quarter company had disburse the loan that was 7,944 Cr and in same period company had disbursed 11,981 Cr. This is always a micro credit seasonal growth . First quarter will be low , second quarter little bit better then third quarter is an arc and fourth quarter it is high. It is the trend in the micro credit segment.
In terms of Non-Micro Finance growth, where will company see the growth in third and fourth quarter ,where company see the non-micro credit in next 2 years in proportion of total advances?
Q3 and Q4 are the highest in terms of absolute amount of growth for micro finance. In percentage terms company don’t see major improvement in total assets. So overall Non-Micro will grow to 12-13 % growth.
How do company record the sell down which company do for the priority sector ?
Company amortize it in 4 quarters.
What has led to such a strong NIM on the quarter on YOY basis because the cost of funds also increase so kindly give scenario on how company average SA rate and NIMs have been move down and kindly give yield on overall basis on advances is 15.4 so what is the average yield on micro finance portfolio ?
Yield on micro finance book is about 18.4 %. Overall yield on advances is 17.5 % and then there is a treasury book which generate 7.1 % so the overall blended yield is about 15.3 %. Current quarter company cost of funds has come down from 6.5 % to 6.3% and Q2 of last year it was 6.7 %. So overall company spreads have improve from 9 % to 8.3 % in last year that was 8.9%. That is how company is able to maintain their NIMS as 10.3 %.
How will cost of funds will move going forward in terms of borrowing ?
It all depend on the market rate movement.
This is an combination of some of the product. In terms of CASA if the CA increase then automatically the cost of funds will come down. So company CASA has come up from 20.18 % and now it is 36.92 % . Same in CA has increase to 1.3 % so it is a total combination.
Will the guidance of 1 % of credit cost will be maintained or how much provisions has been provided for IL&FS ?
In the last year H1 company credit cost was 1.5 % and now it has come to 0.9 %. It always range between 1 and 1.5% depend on seasonality and company will try to maintain the 1 %. Because company Non-Micro portfolio is only 13 % of the total book. So it has not much impact the book.
Is there was any provisioning made toward IL&FS ?
Provisioning as per RBI norms is 0.25 % to 1 %. Non-Micro Credit also whatever the RBI prescribe company is maintaining 100 % on that.
In terms of entire amortization on M2M hit so did the trend of 37-38 Cr would be there for another 2 quarters as well the way the yields has been there an on September ?
Q1 loss was amortize over four quarter . Q2 company has charged it fully and does not amortize.
Is there any major run down on the Non-Banking finance assets because the quantum is small but sequentially there is a dip while disbursement is still building up so anything to rid into it or any particular asset to get repay on it which is the reason for the run down in the Non-Banking finance portfolio ?
There are couple of exposures which has been repaid . The portfolio is more or less stable.
Why there was 3 % growth in PSL income and what was the other income last year ?
Company policy for PSL last year was use to accrue it on time company accrue it and last year company have sold 80 % of the PSC in Q2 . Last year the total PSL income was much higher which was about 118.8 Cr. Against that this year company have booked 230 Cr. Last year company policy was to record the entire PSL book in the period in which company has sold and not amortize as against company is amortizing it toward 4 quarters to bring it in line with IND-AS starting next year.
Company did have a large hike on employee cost in last year or MFI or DSC employee also got the hike . So has the full impact run through the whole employee rise and is now it is much more stable thing to look at ?
Company have not hike anything in that way it is normal way of increment on that . Company have policy of promotion every 3 year and this is 3rd year.
Company average ticket size is about 35,000 so YOY it is about 22 % increase so is that is only a transaction to company long term loan or is there a real ticket size increase happening in the existing loan book for a short duration ?
Company number of new customer added in this quarter it could help company. Company have added 7.7 lakh new customer added in this quarter out of that 4.9 lakhs are in micro-credit.
Company look at 15-17 % customer growth YOY and which are in terms of one-two year loans or the regular increase because of the GDP and inflation for good customers.
What is the company PSL income for this quarter ?
65 Cr
Kindly give the breakup of the loan book on the MFI side from geographical perspective and what is the average ticket size toward West Bengal ? What is the current cost of saving accounts ? Give some color on the term deposit that has been acquire today ? What is the PAR 30 book on the MFI book and is there any changes in the top management ?
Rahul has started the new enterprise for his own so he left from top management and company will very soon announce the another name.
Company average loan credit in micro finance is 60,205 disbursement across the country and west Bengal is on the same line on that not less and not more.
The savings rate is 5.05 % and the overall 1 lakh and above deposit is 66 % of the total deposits.
The PAR-30 in the MFI book is 1.79 % and it was 2.13 % in Q1.
The geographical perspective of MFI is 13 % is from the branch in central , 53 % from western region , 11 % from north eastern, 7 % from north, 7 % from south , 7 % from west. Loan book is 8 % central , Western 58 %, North eastern 21 %, North 4 % south 2 % ,west 6 %.
Kindly give the breakup of the general banking book between the MFI , MSME and Retail ?
Micro credit loan is 86.7 % , SPL 4.9 % , retail 3.2 % and SME 5.2 %.
From the higher proportion of incremental growth is coming from in the loan book is it still largely from east or central states ?
Acquisition of new customer is happening outside Bengal More but since the existing customer base and average ticket size of all is higher and the mix will not totally reflect the change in customer acquisition.
Does company see any issues like in Assam because of Flood and political situation over there and in any of the states did the PAR move up over the last quarter ?
No that is not the issue but overall micro credit sector there is always some operational issue happened in the ground level and it depend on the environmental not the issue of internal anything , Yes due to flood company will differ one installment depend on how much is affected in that area but this year it does not happen because company don’t have any operation happening in Kerela.
What was the thinking behind lending 388 Cr to IL&FS and what is the status now ? What is the tenure of this particular exposure ?
The loan has been surrender by IL&FS. This is an exception company don’t do corporate banking. It was taken in two tranches one was two year back and another was 6-8 months back.
RBI has told that company to not expand its branches until the shareholding pattern get settle so does company see that as a drag for the company growth for next 2-4 quarters ?
Company have 938 branches and within that branches company have open 2.8 lakh new account and company have 3010 micro finance office . This year company have already open the DSP that open 4.5 lakh new customers. Company have grown very good in the existing branches and credit growth has come to 54 % out of that 87 % is micro credit . Without increasing New Branch and DSP is not a big issue. In DSP number of customer are 2,700. Company have capacity of 3,600 customer. So 900 PAR DSP company will like to have and company need another 2.5 year to cross the 3600 DSP.
In 938 bank branches there is average 3000 customers and other private bank have 25-30,000 customers. So there is opportunity to add more customer in the existing branches so the business growth is not a challenge for company.
Company don’t have any plan to open any DSP because company have already open 2500 DSP already so FY 2019 company business target is already done.
Is the Saurabh Jain is the Head of wholesale banking so does company is planning to entering in it ?
Yes , the SME and MSME will likely to be drive under him. Now company has planned for all new products for corporates like salary account and cash management this also come under him .
There was 24 % rainfall deficit in North region so will it impact the micro credit or SME part which is there ? The 50 % growth in AUM kindly bifurcate it from where the incremental growth has come from old branches and new branches ?
In micro credit company is not giving direct agriculture growth. The agriculture part is also not very much affected their so it will be moderate and company don’t see any risk their in future and there is no delay in repayment.
100 customer every branch has given to company and company don’t see any big difference from one to another . Sem-Urban and rural disburse different kind of loan and 99 % of people of company achieve their target. Main plan is to increase CASA and that is nearly 37 % . So as of now company don’t find ant old and new branch very big difference.
Any thought on the non interest income stream ?
Insurance and Mutual fund is the opportunity for company going forward . Company have been conservative in the starting 3 years because company want to stabilize the banking system first. So company will be looking at this stream of income going forward.
Company have started selling mutual funds and insurance is yet to start.
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someone who trackes Bandhan bank closely,
could you explain how Bandhan was able to weather the demon issue so well? its P&L for fy18 almost shows no negative impact… topline bottomline steadily increased, just like a regular pvt sector bank… while Ujjivan/Equitas had flat growth with excessive writeoffs…
I think there are 2 reasons
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They were fully functional banks and could accept specified Bank notes i.e. banned currency.
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They have little competition in the geographies they used to work as MFI… If people stop paying loans, their only option to get credit in future goes away. So, cumulatively people could deposit as well as it was most convenient option…
I will not take credit away from management… Management is also very good, but I feel even good quality managements had problems during demon and these 2 factors saved the day along with the management’s prudence.
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I finished reading “Bandhan - The Making of a Bank” by Tamal Bandopadhyay. This is a good book to read to understand evolution of Bandhan, story of Chandra Shekhar Ghosh. It also covers good content on Vijay Mahajan, so called father of Indian micro-finance and has a chapter on rise and fall of SKS Micro-finance (Now Bharat Financial Inclusion Ltd.). The annexure has history of MFI industry & good coverage of Andhra MFI crisis.
Following are some notes (not an exhaustive review) -
I had often wondered at the speed with which Bandhan Bank has opened branches - 938 as of Q2. That’s almost one branch per day in their ~3 years of history post receiving banking license. (To put this in perspective RBL Bank has < 300 branches & longer banking license). They opened 500 branches on day 1 & it was a world record at the time. Not that they wanted to set world record but this was necessitated because they had ~2200 DSCs where lending activity was ongoing even before they got banking license and the surplus cash generated by these could not have been deposited into other bank once you get banking license. So they had to open so many branches on day 1.
Tamal does a very good job of bringing out differences between SHG (Self Help Groups) vs. JLG (Joint Liability Group) as I did not understand it & history behind it. In both SHG or JLG, a group is formed to create moral & social pressure so that individual does not default on the loan repayments.
The difference in SHG linked lending is - the banks lends to the SHG as a whole and terms of lending internal to SHG members are rather flexible. In case of JLG, individual is the borrower with other members of JLG acting as guarantor to the other borrowers. The MFI industry follows JLG model.
Tamal summarizes the essence of risk management in MFI industry as follows - “risk management is all about keeping the loan amount small, forming a good group and carrying out strong supervision”. The JLG meetings usually happen once every week, usually in the courtyard of leader of JLG. The collections also usually happen at these meetings. The formation of initial group in new territory, training given to credit officers, rules of membership etc. are important qualitative aspects to track if one was looking at risk side of MFI stories.
Bandhan continues the history of meeting every single lender once a week for 52 week despite becoming a bank. The book also provide some interesting rules of group membership like - unmarried or widowed women were not allowed to be the part of the group as when these women get married they change location & it becomes difficult to collect repayments.
The rising ticket size in MFI industry are generally considered a negative, the book brings out a different insight in this matter. It claims that as income rises for the MFI customers (who are bottom of the pyramid), their future needs also rise to support business expansion etc. The book has few examples where borrower had first loan of 3000 & had eight loan of 60,000. So I think ticket size has to be looked in more granular manner - ticket size of first time borrowers vs. ticket sizes of repeat borrowers.
Much has been written about the Andhra MFI crisis and the law that barred door-step and weekly collection. The core causes of crisis were - intense competition amongst MFI/Banks to increase loan book, multiple loans to same person, rising ticket sizes etc. The Andhra crisis resulted in closure of MFI of Vijay Mahajan, the father of Indian MFI industry. It also causes severe pain for SKS which since then has recovered. The situation has improved since then - with regulation from RBI and self regulation from MFIN etc.
Some risks that come to mind and need to be tracked are as follows -
- Political Risk: As of 2015, there were more than 2.5Cr MFI borrowers. These are bottom of the pyramid borrowers, part of JLG and easy target to be patronized by political class. This is what happened in Andhra Pradesh and repayment rates went down from 98% to 10% during Andhra crisis. Having concentration in single state is one of the big risks that needs to be tracked for MFI companies. Hopefully, RBI “closely” regulated entities such as Bandhan Bank or SFBs like Equitas/Ujjivan probably has better survivability than other MFIs. The political risk probably compels likes of Equitas to get into non-MFI assets as these are very well regulated & probably borrower class can be less easily politically patronized.
- Kind of Investors: Because of attractive RoA, a lot of “aggressive” money came into MFI space (as in case of SKS). The whole thing became about money making, higher valuations as against poverty alleviation, upliftment etc. I think it is important to look at money coming into MFI and also one should look for “missionary” promoter/management that stays true to the spirit of MFI lending. I would also look for softer signs where lower cost of funding is passed on to borrowers, anecdotal stories about JLGs, number of JLGs, size of JLGs etc.
These risks are higher in my mind compared to secured vs. unsecured debate. Eventually, high margins and high RoA are the root causes that lead to greed and some unethical behavior resulting in boom/bust cycles in MFI space.
Finally, Mr. Ghosh comes across a very passionate person towards Bandhan with uncommon common sense. The thing that stood out for me was his ability to scale the operation (2200+ DSCs, 500 branches on day 1, liability/CASA profile of the bank etc.) without any significant slippage on quality parameters. (~400Cr exposure to IL&FS needs to be questioned though). He is very cost conscious and his rule books on timings of the branch, culture inside organization, expenses allowed in DSCs and details behind them etc. are very good. He definitely comes across a “missionary” in my book with ability to scale things very fast. How future unfolds needs to be tracked.
Tamal also raises some important questions which we should take note of -
- Most liability side customer prefer a single bank providing entire range of services (asset/wealth management, insurance, credit/debit cards etc. etc.). Can Bandhan build team and expertise in this area?
- There are two cultures in the bank - asset side culture where employees come from bottom of the pyramid, are paid less but associate strongly with the culture created by Mr. Ghosh. The liability side culture requires staff dealing with middle/affluent class clients and where Mr. Ghosh is looking for talent and they are probably better paid. Can these two cultures co-exist in harmony and grow the bank?
- As bank tries to build non-MFI assets, does it have requisite underwriting skills, teams, expertise in place?
Disc - Tracking position in Bandhan Bank, > 5% of portfolio in Arman, no investments in the rest. This is not a buy/sell reco, investors are advised to do their own due diligence.
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Sometimes markets are inefficient to value certain companies
Bandhan which lends in some states is valued at 56K cr
Tata Motors which has plants across the globe with huge assets is valued at 47K Cr
Your figures about Tata motors do not seems to be right
Figure is 47k, which is lesser than Bandhan, but that is an absurd comparison. Valuation is a function of not assets or even sales, it is how much value you capture from your assets or sales.
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How the shareholding norms can be addressed. Only negative market is taking in my observation,though it is a bit tricky thing for mngmnt. What is your view on this.
Disc : Invested.
Read somewhere today that India new Chief Economic Advisor is on the board of Bandhan Bank. Nothing much to make out of it I think, just wanted to share here.
If we look back, Bandhan Bank has the tradition of involving top class business brains in their operations. Their IPO issue price valuation team consists of Goldman Sachs and JP Morgan.
Last year non-ex chairman Ashok Kumar Lahiri joined Fifteenth Finance Commission as member. And now, director Krishnamurthy Subramanian becomes the Chief Economic Adviser.
A small relief for Bandhan Bank
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df41915f-483d-4cc5-b5c0-7f0d9d42140c.pdf (2.0 MB)
Filing by Bandhan Bank on amalgamation with Gruh Finance
Swap ratio 568 shares of Bandhan for every 1000 shares of Gruh.
So either Bandhan share price has to go up or Gruh will come down relative to Bandhan share price to remove arbitrage value. Considering Bandhan already paying little less than 50 times P/E or 13.x times P/B for Gruh.
Views invited to see how this will affect short term for the stocks.
Disc: ~ 3% PF in Bandhan and toke holding in Gruh.
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What will be the pros\cons of the said merger?
Pros:
- HDFC will become one of the promoter with 10% stake.
- Bandhan Bank can leverage the loan assessment capabilities of Gruh. Gruh has an excellent, time tested, decentralised system of credit appraisal.
Cons:
- At the time of the merger, Gruh is very expensive. Bandhan bank shareholders will be paying for merger with stock available at 11 times the book value.
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Valuations are expensive no doubt but you have to pay for buying a diamond…for buying a Sachin Tendulkar… Short term not sure…however Long term big positive for Bandhan i feel, it gets
a. HDFC as a promoter - so premiums to Bandhan valuation will continue.
b. Management of Gruh comes to Bandhan
c. They immediately get all branches of Gruh in the WEST where they have negligible presence.
d. Massive cross selling opportunities to each others customers - MFI loans in west and housing loans in the east. 2019-20 may be even higher growth.
e. Overall - becomes a HIGH quality financial(proven credentials) with focus on rural and semi-urban.
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bandhan valuation appears optically less expensive to gruh finance because bandhan recently raised money through IPO that leads to optically low price to book as book is risen up.In spite of that gruh is expensive but not that expensive to bandhan bank as it apppears.
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