We are provisioning for net NPA in this quarter also. It has come down and so a very small amount has come. This is a conscious call because we have not written off NPAs in this quarter, says CS Ghosh, MD & CEO, Bandhan Bank.
It has been a kind of mixed performance for Bandhan Bank. While the bank has reported the highest ever quarterly operating profits, NPA stress has also risen. Can you tell us about the quarter?
This quarter was more severe than any other quarter in the pandemic situation. The second wave affected lots of lives and people were more scared about it. That prevented a good number of business owners from properly running their business. It started in the first month of the quarter from central India, Delhi and Madhya Pradesh and Chhattisgarh and it has gradually gone to the north east. Till now, it is happening in the north east.
Secondly, micro credit is nearly 60% of Bandhan Bank’s advanced book. The staff go to customers’ doorsteps to collect instalments. It was not easy to do because of the lockdowns and also because of risk to staff health. The number of cases affected came down in July and lockdowns were also lifted and a couple of rating organisations and the government also declared their GDP growth rate will come to 9-10%. I hope the future turns very good.
The total collection efficiency stood at 86% in Q1. Talk to us about collection efficiency for the overall book and collection efficiency in states like West Bengal and Assam. Are you seeing any improvement versus the last quarter?
There has been improvement in collection efficiency. In March, micro credit collection efficiency was 95%. In April, May, June it was hit in a big way by the Second Covid Wave. For that region, it has come down a little bit.
In case of the micro credit portfolio, in the first quarter our demand was Rs 13,000 crore and we collected nearly Rs 13,000 crore including arrears. That means our customers are paying the instalment. The total collection efficiency including arrear is 98% in micro credit and in case of total bank, it is 101% which shows that after the bad situation in the first quarter, it recovered a lot in this month. I hope next quarter onwards it will improve further.
Has micro finance loan book slowed versus last quarter? Is that a conscious call to slow down the growth as collections and demand may be impacted?
No. There are three factors here; one factor is that in the first quarter of any financial year, demand for credit always comes down. Secondly, there was the impact of Covid 2.0 in first quarter and that also impacted demand. Thirdly, we are disbursing credit conservatively and on a very selected basis.
Credit cost has come down versus the last quarter but it is still pretty high at 4.9. Will operating profits be enough to take care of the provisioning or the credit cost needs?
The provisioning is in two parts. One, it has helped me to increase PCR. The other side, it has helped us to strengthen our balance sheet. We can continue this provision continuously and accordingly the business growth will absorb it.
Gross NPAs stood at 8.2% and the net at 3.3%. At a net-net level, will gross and net NPA for FY22 be higher?
No. We have not written off this quarter. We have a Rs 700 crore account for NPA. If we write off this NPA, it will not be in place. Again, when one calculates the gross NPA percentage, because my advance book size has come down, percentage wise also, it has come down. Otherwise, percentage wise gross NPA has increased by 0.5% from last quarter to this quarter. We are tracking that. We are provisioning for net NPA in this quarter also. It has come down and so a very small amount has come. This is a conscious call because we have not written off NPAs in this quarter.
Overall the loan book has declined by about 8% quarter-on-quarter. What kind of loan growth do you expect this year?
In this type of a situation, the bank will be cautious and very selective. The credit growth will come from the last month of the second quarter before the Puja and Dussehra to the fourth quarter. That has been the case in normal times and even last year. So it depends on whether the Third Covid Wave comes in the Puja season or not.
Over the next one-two years, which segments do you think will lead to growth — microfinance, mortgage or commercial banking?
Microfinance is a very standard model and India is a big country. There is no growth driver needed for that. But we are likely to drive the growth of the housing loan vertical. It accounts for 24% now and in future we would like this segment to account for 30% of the total book.
The second vertical we are focussing on is MSME which caters to less than Rs 5 crore type of MSME. There is a huge market which is secure and we would like to grow it in future. Gold loan is another we would like to grow because like housing loans, it is also secured. These are the three sectors we would like to focus on in future and which we expect to account for 30:30:30 by 2025.
What led to margin improvement during the quarter, at what level do you see margins stabilising going ahead?
I have always predicted that around 8 or 8 plus will be NIM but this quarter, it is a little bit higher compared to the last quarter. That is because of last quarter we have reversed the interest of Rs 500 crore. Otherwise, 8 to 8.4 is what we would like to maintain.
You seem to have sufficient capital, how long will the current capital last considering your growth?
The growth of the bank was a little bit on conservative side last year and this year we expect normal growth. Upto 2025, we do not need the extra capital.
Is the structure of the financial industry changing with competition from fintech players?
The banks are focussing on digital transaction mode for the customers. At Bandhan Bank, in the last quarter, 87% of the transactions happened digitally. 11% of the bank accounts were opened digitally. We are also invested in digital transformation of the bank. We are also focussing on how we can give digital service to the customer.
Won’t you need additional capital to expand in digital space?
We have enough funds and we are already working on that from last year. Whatever is needed, will be invested from our own funds.
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