The end of Assam and West Bengal polls was expected to end
Bandhan Bank worries, but a rise in Covid infections and hike in bad loan provisionings has cast a shadow.
The lender derives a major chunk of its business from the two states.
Collection trends improved to 98% in Mar’21, but declined 3–4% in Apr’21 due to the advent of the second Covid wave, though the drop in collections in West Bengal was less than 3%. Nearly 78% of customers were able to pay some instalments in March 2021 among the NPAs in the MFI portfolio.
The results
The bank missed the fourth-quarter profit estimates by a wide shot due to a jump in bad loans and high provisioning.
It reported an 80% dip in its March quarter net profit at Rs 103 crore, as it wrote off a huge portfolio of loans worth Rs 1,929 crore in the flagship microlending business by recognising stress upfront.
As a result of the accelerated write-off, the bank’s overall provisions shot up to Rs 1,594 crore in the reporting quarter from the year-ago period’s Rs 827 crore. It also made an additional provision of Rs 388 crore on standard advances in the microfinance segment.
Bandhan Bank reported a weak quarter, with net earnings sharply trailing estimates, affected by higher interest reversals of Rs 540 crore. Thus, net interest margins declined 150 bp quarter on quarter while elevated provisions of Rs 1,590 crore further impacted earnings. Total Covid-led provisions for FY21 comprise Rs 1930 crore toward write-offs and another Rs 2,900 crore toward loan loss provisions.
Bad loans
The GNPA ratio improved despite elevated slippages, primarily on account of higher write-offs during the quarter. However, Provision Coverage Ratio fell sharply to 50% (v/s 67% proforma in 3QFY21).
Total loans restructured stood at Rs 620 crore, predominantly in the Housing Finance portfolio, while ‘Nil’ restructuring was seen in the MFI portfolio.
On the business front, AUM grew 8% QoQ, led by strong disbursements in the MFI portfolio. Liability traction was robust at 37% YoY, with the CASA ratio improving 50 bps QoQ.
Management hopeful
Bandhan Bank MD & CEO Chandra Shekhar Ghosh is hopeful that the economy will rebound by the third and fourth quarters of the current fiscal, enabling the lender to meet its targets.
He said the bank had exercised caution amid the COVID-19 pandemic and made additional provisioning in the last quarter of 2020-21.
“We remain cautiously optimistic for the current fiscal as we have made additional provisioning as safeguard. The second wave of Covid pain is expected to subside in the next two-three months, and this time people are better geared than the first wave that took everyone by surprise.
“The worst seems to be over, and the economy will rebound by the time major lending business happens in Q3 and Q4, to meet our targets,” Ghosh said.
Overall, we expect asset quality trends to remain under pressure; thus, we estimate credit cost at 4.0% of loans for FY22, Motilal Oswal Securities said.
