- 250 branches will be opening in March’2020 as bank had already started process
- Its almost 25% growth in terms of branches
- They had started process and would have approached regulator for approval, now they are free to do on their own
- Opening 25% rural branches is normal criteria & applicable to all banks
- Bullish on last quarter as usual
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Can we do a list of SWOT? My thoughts:
Strengths:
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Robust management (Mr. Ghosh as mentioned in the Bandhan book is a man with a sense of vision and direction, high on integrity, stickler for processes, ready to face ANY challenge, hard negotiator, knows mfi business very well, strong in relationship building, liked by employees, likes to move fast while managing risks).
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Transition into a bank that gives access to lower cof in the form of deposits and thereby a chance to lower borrower’s interest costs. Bank was a natural transition.
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Strategic investment by HDFC.
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Experienced management team.
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Survived mfi crises.
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Strong moat built over time viz. Brand name, network effect, cost advantages, hfc ready with a tried and tested model etc.
Weaknesses:
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Being a recent bank, their systems need time to mature enough to be at par with hdfcs of the world.
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PE funds and institutions usually exert unreasonable pressure on the management for growth and returns. Usually the institution guys have far less business acumen than the promoter but they’re ruthless and selfish.
Opportunities:
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Cross selling of hfc and mfi businesses.
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Huge addressable market.
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More product offerings.
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Robust CASA balances aids competitiveness in lending and reducing lending rates relative to competition.
Threats:
1.Banking is a regulation-heavy business. A ton of energy goes into compliance and service. Focus should not get lost from growing the business and the core competencies i.e. MFI.
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13x book paid for Gruh making it an expensive purchase. Acquisition throws open lots of opportunities and has its advantages I.e. brand, parentage, tried n tested systems, customer base, promoter stake dilution etc.
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High promoter stake and need to dilute. The management has indicated that they’re working on a constructive plan.
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Can the Bandhan management successfully manage banking and gruh acquisition? Their mfi track record gives confidence but time will tell.
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Stock price crash from 650 to 400-odd, 5x pb valuation. Anchoring bias may backfire in the short run.
Pl add your thoughts, it’ll help everyone understand bandhan better.
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HDFC definitely not a strategic investment. Survived MFI crises as the crises happened in andhra otherwise they would also have not survived. PE investments and pressure doesnt matter given promoter stake and listing.
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https://www.thehindubusinessline.com/markets/bandhan-bank-buy/article30990265.ece
According to JM Financial the collection in Assam is below normal. However, anti-CAA protests are largely confined to couple of districts in North Assam which were already facing anti-MFI issues. State-wide contagion is absent as of now.
They speak of valuation comfort at CMP and have given a lofty target price…
Motilal Oswal also had initiated coverage couple of days ago with BUY rating.
Assam finance minister: "Micro-Finance Institutions have played a significant role in promoting financial inclusion in Assam over the past few years - especially in terms of providing facilities for availing credit, deposit and insurance products, in addition to penetration of branches for extending banking/financial services in remote areas of the State. However, some undesirable events have recently come to light in this sector which indicate structural and operational problems at the grassroots level.
In this regard, our Government proposes to frame detailed guidelines for the operations of the MFIs in the state, to safeguard the interest of our people immediately after the Budget Session. We also propose to constitute a Micro-entrepreneurs Support Fund with a corpus of Rs. 500 Crore towards comprehensively addressing the current issues facing the Micro-Finance sector of the State.”
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Bandhan opens 125 banking outlets spread across multiple states. The distribution of new banking outlets is interesting… Out of the 125 new banking outlets, 42 have been opened in Uttar Pradesh, 29 in Rajasthan, 12 in Madhya Pradesh, 7 each in Andhra Pradesh and Telangana, 6 in Bihar, 5 in Chhattisgarh, 4 in Orissa, 3 in Tamil Nadu, 2 each in Uttarakhand, Karnataka, Maharashtra, and Assam, and 1 each in Delhi and West Bengal.
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is this going to effect bandhan bank a big way ? If SBI Can do , HDFC and others can also do . Request the members to comment on the same
Microfinance is an absolutely different ballgame wherein money is disbursed without collateral and timely collections make the difference. PSU banks have huge NPAs, inefficiency even when they don’t disburse without security, collaterals etc. Mare announcement will not make any difference and I don’t think any of the PSUs have the infrastructure to enter microfinance
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Business is all about moats. Read the explanation of moat in detail by Buffet. Why is HDFC #1? Becoz others attempted to get into the same business but couldn’t achieve the same way as HDFC group.
If Bandhan is a strong experienced management they should be able to do well. SBI entering and possibility of others too entering means that the size of the market is humongous for all to thrive. Weak hands will be killed and the fittest will survive.
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Bandhan is trying to re-align its micro lending business exposure. As per latest interview their 60% micro lending will be reduced to 50-50 ratio. They are trying to evolve more like a complete main stream “Bank”.
And regarding moat of a business? I would suggest to study West Bengal chit fund scam era. There were many players came and vanished. Most of them are in jail now. Sarada,rose valey,mps,tower group all are gone. All tried micro lending, but Bandhan survived and survived well. Not sure about SBI, They are trying to go with the trend it seems. But micro lending without following the concept of micro lending I doubt how much they can penetrate. And all must follow the defined band of lending interest. Not sure how they are claiming to lend in much lower interest. Lot of doubt with this SBI trying hand in micro lending. Lets hope this initiative will not have the fate of SBI ‘Lunch time’ joke 
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I won’t think it that way. SBI has infrastructure in under-banked region in India. HDFC and other private banks does’t have that. At best, they have branches focusing on acquiring liabilities. More importantly, they don’t have people who understand this unsecured loan business. Even if they poach few, it takes years to build a pan-india credible niche in this space. That’s why MFIs have largely remained a regional story. Although Bandhan is 5 year old bank, it is into this business for 19 long years and being a commercial bank has helped them position better. They have scaled bottom-up in business.
SBI, on the other hand, has infrastructure. But banking more about survival than growth. Anybody with money can lend aggressively and acquire NPAs. PSU banks are struggling with NPAs even with the business that has collateral. They don’t understand this business as well.
Bandhan Bank’s edge is their understanding of this space and execution capability. As long as they stick to the segment they understand best and strengthen their asset quality (e.g. by offering secured retail loans like housing loans), I wont be concerned.
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Hope Microfinance doesn’t become a political tool like agri finance where the politicians write-off all loans made by a PSU bank before every election. This will result in disastrous repayment habits and kill the industry
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Bandhan to be included in Bank Nifty.
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“SBI’s microfinance plan may be different from others in the sense that it may provide loans to individuals without the need to form joint liability groups, which is a common microfinance practice.”
What SBI is trying to do is micro loans, which isn’t exactly JLG loans that is Bandhan’s forte… however there might be competition from two sides:
- in any MFI business, once the customer needs higher ticket size loans, they are given individual loans by the banks/MFIs… so Bandhan can potentially face challenge…
“The bank has identified about 8,000 branches, mostly in the hinterlands, for offering loans to borrowers such as tea-stall owners, tailors and rickshaw pullers and would rely on Aadhaar numbers for customer identification.”
- Usually in MFI business, Bandhan targets the women customers, which is in all likelihood not business/activities run by women… therefore not exactly overlapping… however their might be a slight overlap of women borrowing for their husbands…
So my guess is that its not directly impact Bandhan’s business at a scale…
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Yo my understanding, all microfinance companies work on principle of JLG and bandhan does give loan to gents too
The Bandhan giving loans to gents, is it the JLG loans or individual loans for say Auto, Home etc?
my guess is is JLG is pre-dominantly given to women…
also MFIs are expanding into individual lending (eg. Grameen has 5% of book comprising of retail individual loans) however it needs to be limited to 15% of the book of the MFIs… however banks (i.e. Bandhan) dont have this limitation
Bandhan lends using the shg model rather than the jlg model. Therz a lot of space at the top, the best only will survive going forward.
Bandhan has a strong brand name, actual Bandhan with borrowers and experience. The space should allow multiple players to thrive.
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As per Mr Ghosh, Bandhan Bank plans to lower exposure to microcredit. It has already reduced to 61 percent from 85 percent (in Aug 2016). Over the next three to five years, the bank’s ratio of micro and non-microcredit will be 50:50
Housing loans (due to Gruh) make up for 30 percent of the credit portfolio and MSME 9 percent
As of December 2019, the bank’s total exposure stood at Rs 65,456 crore, with a deposit base of Rs 55,000 crore and CASA level at 34 percent
Bandhan is expecting secular growth in terms of credit offtake in the current financial year despite the slowdown in the economy.
Though there is a slowdown due to multiple factors, the impact on the credit growth of Bandhan Bank will not be very much. Due to good rabi crop, spending by low-middle income consumers will be at a good level
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