Asset good quality deteriorates CE remains essential monitorable: Bandhan Bank reported 1QFY22 PAT of Rs 3.7billion, above our estimate — supported by margin improvement (170bp QoQ) and reduce provisions v/s MOFSLe– even as MFI loans / total AUM declined 9%/~8% QoQ. On the liability front, the CASA ratio came in steady at ~43%, though the proportion of retail deposits enhanced to ~83% (v/s 79% in FY21). Slippage was elevated at Rs 16.8billion (annualised slippage ratio of ~9%), with MFI slippage at ~Rs 10.4billion. Therefore, the GNPA ratio improved 137bp QoQ to ~8.2%. Provisions have been elevated, with annualised credit price at 7.2% of loans. Thus, the provision coverage ratio (PCR) enhanced to ~62% of loans (v/s 50% in FY21). The restructured book improved sharply to ~Rs 53billion (6.6% of total AUM). SMA loans surged to 21%, though a big portion of the SMA overdue in Assam was eligible for a relief package. As a outcome, LGDs would stay controlled. Collection efficiency (excluding NPAs) in the MFI portfolio stood at 86% (~85% for West Bengal) and remains a essential monitorable in the close to term. Overall, asset good quality remains uncertain, and we estimate credit expenses to stay elevated at 5.5% of loans for FY22 (comparable to FY21 levels). Maintain ‘neutral’, with revised TP of Rs 330 (2.4x FY23 ABV).
Restructured portfolio grows to 6.6% of AUM PCR improves to ~62%: Bandhan Bank reported PAT of Rs 3.7billion (v/s estimate of Rs 1.8billion) in spite of elevated provisions of Rs 13.7billion (annualised credit price at 7.2% of loans). NII development came in at 17% YoY (4% above estimate) in spite of sequential decline in AUM development (~8% QoQ), supported by 170bp QoQ expansion in margins to 8.5%. Other earnings grew 38% YoY, supported by a benign base. PPOP, therefore, grew ~18% YoY to Rs 18.7billion (5% beat). AUM declined ~8% QoQ (up 8% YoY) on ~9% QoQ decline in the MFI portfolio and 4% QoQ decline in the housing portfolio. The share of the MFI portfolio stood at ~66% of total AUM (v/s ~67% in FY21).
On the asset good quality front, slippage stood elevated at Rs 16.8billion (annualised slippage ratio of ~9%). Therefore, the GNPA ratio improved 137bp QoQ to ~8.2%, though the NNPA ratio declined 22bp QoQ to 3.29%. Provision coverage enhanced to 61.8% (v/s 50.3% in FY21).
Highlights from management commentary: Slippage from the MFI portfolio was ~Rs 10.4billion, with recoveries and upgrades of Rs 5.1billion. At the portfolio level, total slippage stood at Rs 16.8billion, though recoveries and upgrades at ~Rs 10billion. The bank has availed CGFMU (a assure from the central govt) on the total portfolio of Rs 143billion. Nil disbursements have been made in Assam for the duration of the quarter. Also, there have been nil disbursements below the credit assure scheme.
Valuation and view: Bandhan Bank reported greater-than-estimated PAT, supported by margin expansion. This was in spite of elevated slippages/provisions due to (a) the second Covid wave (which severely impacted the MFI sector) and (b) the disturbance in credit culture due to loan waivers. Restructuring/SMA overdue in the MFI book improved sharply. Provision coverage improved to ~62%. which provides us some comfort. Collection efficiency in the MFI portfolio stood at 86%, with 85% for West Bengal — closer to the rest of India. Overall, asset good quality remains uncertain as the pool of restructured/SMA overdue remains higher. Thus, we estimate credit price to stay elevated at 5.5% of loans for FY22 (comparable to FY21 levels). Maintain ‘neutral’, with revised TP of Rs 330 (2.4x FY23 ABV).