Bandhan Bank - in a sweet spot?

They hold more than 42 Cr shares in total, if they need to restrict their holding to 9.9%, seems they need to sell huge & selling it open market will have adverse impact on prices.

What are the other options available with them?

I think that is what is holding back the price in this environment, even Bandhan is talking of OFS and all this weighs down on price.

The progress on amalgamation

bandhan.pdf (296.1 KB)

Bandhan Bank has received approval from the BSE and the NSE for the proposed scheme of amalgamation of Gruh Finance with the bank.

In a notification to the stock exchanges, the bank said, “BSE and NSE, have by their respective letters dated April 3, have issued their observation letters with “no adverse observation” and “no-objection” respectively, to the proposed scheme of amalgamation.”

Bandhan Bank, had in January this year, announced merger of Gruh Finance with it. The move was taken to bring down promoter holding in the bank to about 61 per cent from the current level of 82.3 per cent.

According to the share swap ratio, for every 1,000 shares of Gruh Finance shareholders will get 568 shares of Bandhan Bank.

The bank, had recently received RBI nod for the merger. The scheme would be subject to receipt of other regulatory approvals including from National Company Law Tribunal and Competition Commission of India.

It usually takes anywhere between nine and 12 months for such (merger) process to be complete, CS Ghosh, Managing Director and CEO, Bandhan Bank, had said recently. The bank is hopeful of completing its merger with Gruh Finance within the timeframe.

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Any idea How OFS will dilute ROE and what will be the final book value if the OFS price come at current price?

Promoter selling their stake is change of hands If it is for the purpose of raising cash through fresh equity than it will dilute ROE.

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Feel a little concerned after reading employee reviews-
https://www.indeed.co.in/cmp/Bandhan-Bank-Ltd/reviews

Common problem mentioned: Long working hours with low pay, unorganised, not supportive HR or management.

Clearly there is a lot that bank needs to improve.

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All corporate companies are like same. As an employee not to work for them. Few years back there was similar view w.r.t HDFC Bank CEO working style.

If we consider Bandhan’s current price Rs 570 then as per merger swap deal (1000 Gruh : 568 Bandhan) then Gruh 's prcie should be 324 but current Gruh’s price is 288 which is discount of 11-12%. Any idea why it is trading in so much discount ?
Earlier the discount was 4-5% now it is increased 11-12%. It is confusing…

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This discount kept on varying since amalgamation was announced… Intereseting point is that despite knowing that entry via Gruh is cheaper… we don’t see any change in daily / weekly share turnover.

Going by discount we expect that no of traded shares should increase in Gruh or Decline in Bandhan… but surprisingly its almost same pre-amalgamation

On other hand the amalgamation process is smoothly sailing ahead & we don’t see any difficulty / challenges in near future

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IMO, the reason of this anomaly is shareholding pattern of Bandhan.

a.) 82.26% of Bhandhan Shares are held by promoters. You can not expect them to do this arbitrage.
b.) Out of rest 17.74%, 15.57% is held by mutual funds / FIIs… I do not think they can convert to Gruh as conversion costs are much. (STT + Taxes etc)

So this discount is here to stay for some time, but as time progresses, it will will definitely end.

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Great news for Bandhan Bank.

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The merger between Gruh & Bandhan seems to me a win-win proposition. Bandhan gets access to top class management and reach in Gujarat and other areas where Gruh has a dominant presence and Gruh gets a much larger access to capital and reach. How they are able to combine the two entities and reap the benefits is something we need to watch out for as the cultures are possibly very diverse.

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In my view (and I could be horribly wrong), this is going to be a block buster combination. The more I read about CS Ghosh, the more confidence I get in his ability to pull things off. Behind the humble man with his broken English lies a very shrewd businessman and a risk taker.

Using personification on Bandhan, post solemnizing his marriage, he is likely to become a more confident and self-assured individual, in the knowledge that risks in his life have reduced and he has another business line which can try and grow at the same pace he has grown the MFI business.

Below is a talk given by CS Ghosh in 2016 which talks about his journey of creating Bandhan Bank. Those interested in seeing a great bank being created will find it worthwhile to listen to the entire talk.

https://tinyurl.com/y6pr5ddo

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Great clarity of thought Vishalji . Bandhan is up 50% from the low. Thanks for your quality input at the most doomed time.
Can you let us know when this merger process will be completed?

Not sure, however they said ~12 months…
There are very few companies growing 30-40% and with high quality(read ROA / NPA ). Infact they are the best in terms of most of the ratios compared to other banks HDFC confidence on this business and their investment in it is further icing on this cake.

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Very good result by Bandhan Bank.

image

Disc - Invested. 10% of portfolio.

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Stellar results from Bandhan

Bandhan Bank has come out with excellent set of numbers for Q4FY19. It is heartening to see their performance on liability franchisee and ratios like RoA, RoE which are the best in the industry. The bank has CASA ratio of around 40% which many larger banks took decades to build. I attended the concall for Q4FY19 and some of the key points of the concall which I noted are given below:

• 3.50 year journey as a bank completed for the company.
• Bank performance in FY19 was good. FY19 was a bit challenging. Visibility of growth and improvement in asset and liability profile. Asset growth is at 38.46% on a yoy basis. Advances – 44,676 crore which was 32,239 crore as on March 31, 2018. Micro credit loan (MFI) book at 86% and remaining is 14%.
• Deposit was 43,233 crore vs 34,639 crore growth of 24.8% qoq basis. YoY basis growth of 27.6%. Retail deposit is 77%. CASA is 40.75% of total deposit. Deposit is diversified with retail deposit growth. Retail deposit growth is 45% in central India, 40% in Western India, east 39%, north east 30%, north 22% and south is 30%. Focus on retail deposit. Diversified across the country.
• NII in the quarter was 1258 crore vs 864 crore in Q4FY18. Qoq growth of 11.9% and yoy growth of 48.28% in FY19 vs FY18.
• Non interest income is 388 crore and last quarter 234 crore. Qoq and yoy significant growth.
• Profit – 651 crore in Q4FY19 vs 331 crore in Q3FY19. 45.02% growth in FY19 vs FY18.
• NIM is 10.43%. Cost to income ratio has come to 32.58% in the year. RoA is 4.23% this year. RoE – 19% come down. IPO funds led to lower RoE.
• Retail deposit is 77.36% which was 71.93% in FY18.
• Capital adequacy ratio 29.02% vs 31.48% last year. Cost of fund was 6.30% vs 6.65% last year.
• Opex ratio is 3.6% which was same last year.
• Portfolio quality – IL&FS and excluding IL&FS. With IL&FS gross NPA 2.04% which was 2.41% in last quarter. Excluding IL&FS, gross NPA was 1.08%. Net NPA also improved. Customer became more disciple 99.30% vs 98.70% - regular repayment of instalment. NPA reduced and portfolio at risk reduced.
• Branch network of 986 branches as on March 31 vs 936 branches last year. 250 new doorstep service centers. Total banking outlet is at 4000 vs 3700 last year. Opened 200 ATM. We have 400 ATMs in total. 75% of our branches are in unbanked district. Focused on retail customers. Good opportunities coming to the bank. 1.66 crore customers vs 1.30 crore customers last year. 36 lakh new customers. 986 branches. They added 10.52 lakh new added for banking branches (deposits). 44% increase in new customer for deposits. 25 lakh new customers added on microfinance. Increasing number of borrowers in the bank so that our advance growth also increases. After demonetisation and GST, NPA had increased but now it seems things are better. Team built up is also happening. Future growth also coming good. Business model of Bandhan Bank also increased. Liabilities are also doing well. Cost to income is lowest in the industry and NPA is also lowest in the industry.
• We are on the way for merger of Gruh Finance with our bank. Received RBI, SEBI and CCI approval. NCLT approval has been applied. Whenever final approval is achieved we will quickly merge it.
• Customer profile for MFI business – how much is overlapping with other MFI. Last year 72% were exclusive and 60% are exclusive this year. When loan size has increased, they need small amount of loan and they are applying to other MFIs. State wise uniform growth in customer nos? Earlier we saw that because of main base was West Bengal, Bihar, Tripura and Assam. Now we have expanded in our states. Customer growth East and North East is 16% this year and other than these areas is 37%. Other areas like UP, MP growth rate is 45%. I fell that we are diversifying geographically more.
• Break up of fee income – Processing fees – Q4 – 197 crore, 105 crore from PSLC income and rest other. Full year basis processing fees – 533 crore and 309 crore from PSLC income.
• MFI disbursement average ticket size – Q4FY19 – 59,007 per customer vs Q4FY18 – 51,751 per customer. We have 4 plus loan cycle customer of more than 55%. 60% of our customer have single loan from us. 14 – 15% increase will be there. QoQ disbursement ticket size has remained flat.
• Branch opening post restriction from RBI – we applied twice and we got 65 combined approval. 45 branches already opened and remaining opened in 1 – 2 month. For DSCs also we need permission from them. Got big step with acquisition of Gruh, don’t sense any restriction for branch opening and DSC – we are quite confident of getting approval. Process for approval takes couple of months.
• 72% exclusive customer down to 60% exclusive customer this year – What is the incremental loan is customer taking? Other share – we have a policy of one loan per customer. We don’t extend more loans if the loan cycle is going on. We don’t give incremental loans. If customer has repaid 45,000 loan out of 70,000 loan given by us, we don’t give top up loan. But if the business requires 70,000 loan, he might go to other MFI. That is one pattern we have learnt.
• Post demonetisation, lot of new MFIs have come into your states? That’s true but how customer service is provided is important. Last year our drop our rate was 12% while it has come down to 9% this year. Whoever is coming in our regions is not impacting our business.
• Cost to income ratio – where does it go? Branch approval is dependent on RBI approval. Have we reached optimum ratio? Opex ratio is 3.6%. Cost to income is factor of NIMs as well. Since NIMs have been improved, our cost to income ratio has improved too.
• Thought process on provisioning – make some floating provisions for tougher times? As a bank we provide standard asset provisions which is 0.25% against that we provide 1%. Almost 38,000 crore of book we provided 0.75% provision. Contingency provision we don’t provide as RBI considers it as profit management exercise. We have excess standard asset provisioning of 300 crore.
• Holding company stake and discussions with regulators? After the merger, it will reduce to 61% and the balance amount we are working on it and hopefully and shortly we would like to comply with it.
• Small enterprise loan – average ticket size, book has gone down a bit and reason behind that, customer overlap with ex MFI customers. Small enterprise loan is for slightly above MFI – average ticket size is 1,84,000. Caters to 1 to 10 lakh loans. 10% customers migrate from MFI to small enterprise loan in a year. Reason behind decline? This was the segment which was impacted most during demonetisation and GST. We also thought that we should be more conservative. We changed our business model also and analysed their GST returns.
• Average ticket size of SME book is 64.50 lakh.
• Seasonality on liability side? Retail liabilities is linear. Since Q4 our asset growth is higher, deposit growth is also higher. We have highest amount of retail deposit in the country.
• Slippages side – What were slippages for quarter and year? 150 crore provisions for quarter also includes provision for standard assets of Rs.50 crore. Slippages of 763 crore including 385 crore for IL&FS for the year. Why haven’t net NPA not come down by a reasonable amount? QoQ – Net NPA reduction has happened. Provision coverage ratio has also improved to 72%.
• Yield on loans? Offer differential interest rates on different regions? No. Same rates.
• PSLC certificate see higher growth in Q4? Q4 is where we book maximum loans, we sell maximum PSLC. Can this figure of PSLC income be annualized? It’s a factor of premium also depending on market conditions. What’s the premium rate at which our PSLC goes for? 4 categories – small enterprise, agri etc. Q1 has maximum premium while Q4 has lowest as its applicable for one year. For us its 1% for the full year
• Savings interest rate for the quarter is 5.12%.
• Promoter stake dilution – You can apply to RBI for extension of timelines? We are evaluating all options. RBI hasn’t given us specific deadline. As long as we keep progressing. Our endeavour is to bring down asap. We don’t want to put a timeline for reduction in promoter stake.
• MFI customer – 1.3 crore customer. Break up of cycle? 4 cycle plus borrowers are more than 55%. They would have started at average 30,000. Current ticket size depends on many factors. 67% of loan book is for customer above 4 cycle and 55% on number of customers.
• Reason for such high growth in customer base in Q4? If you go through trend of MFI customers. Always banks are giving funding in Q4 on account of PSL norms. So disbursement in Q4 every year used to be much higher. This customer is normally a one year. Most of the times renewals happens in Q4. Reduction in seasonality? Difficult as we don’t give more loans if current loan is due and most of the times loans are due in Q4. Anyway to bring down seasonality? 74 lakh of our customers are legacy customers. In eastern region also business is dependent on Puja. If we start giving top up loans, we can change the seasonality.
• GNPA ratio in MFI book – 0.70% GNPA in Q4 vs 0.81% in Q3.
• Impact of elections and cyclone in Orissa impacting us? In Bay of Bengal, cyclone are common and shouldn’t impact us much.
• Corporate book – IL&FS impacted us. Loans or investments in large corporate which are into problem or given to NBFCs which are impacted currently? None.
• Non interest income – Processing fees for Q4FY18 was 153 crore and PSLC income was 4 crore.
• Branch expansion plans – Strategy before restriction was to consolidate before reaching 1000 branches. We have approval of 1000 plus branches. Further branch expansion will not be as fast as it was over last 2 years. Any paramters set for branches? Per branch customer is 3000 while for establish bank its 10,000 to 20,000 customers. We have build enough capacity.
• Reason for decrease in cost of funds? CD rates for us are competitive – CDs for 6 months were 7.5% vs long term deposits of 9% rate.
• NPL ratio – 0.7%, non MFI NPLs are also low
• Average disbursement ticket size is 59,000. 77% of our borrower are in east and north east.
• Deposit growth – central India – 45%, Western India – 41%, East – 39%, North – 31%, South – 29%, North East – 22% for retail deposits.
• Next 3 – 5 years – lines of business being considered by us apart from MFI and Housing – Main focus earlier while we became bank was to build liabilities. Its been 3 and a half years since we became bank and stabilised operations. Post acquisition of Gruh we want to stabilize the merger first. Other segments like SME and others will grow but major focus will remain on affordable housing finance and MFI. Next 2 – 3 years will be focused on affordable housing as it’s a huge market.

(Disclosure: Invested in Gruh post announcement of merger with Bandhan Bank)

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