Bandhan Bank‘s recovery from Covid-19 has been much slower among its peers as the lender has reported a weak performance on asset quality metrics for the first quarter this fiscal, brokerage firms observe.
“Bandhan Bank reported a weak performance (for Q1FY24) on asset quality metrics with high slippages in MFI. Growth has been slower than peers partly reflecting the weak recovery momentum in this portfolio. Valuations have de-rated quite significantly to its peers and we do see the risk-reward turning favorable as asset quality turns decisively favorable,” Kotak Institutional Equities said in its report.
The Kolkata-based bank on last Friday reported an 18.66% year-on-year fall in its net profit at Rs 721.05 crore for the first quarter this fiscal as the lender’s operating profit declined 14.19% y-o-y during the period.
On asset quality front, the bank’s gross NPAs in absolute form stood at Rs 6960.40 crore for Q1FY24 as against Rs 6967.54 crore for Q1FY23. On a quarter-on-quarter basis, the lender witnessed its gross NPA rise 31.36% from Rs 5298.62 crore for Q4FY23. Gross NPA ratio fell to 6.76% from 7.25% in the year ago period. The gross NPA ratio was at 4.87% for the fourth quarter last fiscal.
“The asset quality performance in the quarter was weaker than what we had anticipated. The bank not only reported a high slippage in the MFI portfolio but also had to account a higher slippage on account of a change in regulation for loans that are guaranteed (ECLGS). We do agree that there is seasonality in the slippage formation for the bank with the first two quarters typically having much higher slippages as compared to the second half,” Kotak Institutional Equities added.
On Monday, Bandhan Bank’s scrip ended the day at Rs 215.35 apiece, down 2.85% from previous close, while Sensex was up 0.80%.
In its report, ICICI Securities said, “Among peers, recovery from Covid-19 has been much slower for Bandhan, though the bank now has ~100% PCR on EEB (erstwhile microbanking segment) stress pool and ~85% PCR on stress pool including SMA 0.”
The brokerage firm said adjusted for ECLGS movement, the bank’s near-term slippages could still remain elevated as the special mention account (SMA) book for categories 0, 1 and 2 had been broadly unchanged at around 5.5% of EEB (Emerging Entrepreneurs Business) loans.
According to Bandhan Bank, following RBI’s notification on income recognition and asset classification in April this year, the advances guaranteed under NCGTC schemes/funds are required to be classified as non-performing advances as they become NPA.
Advances amounting to Rs 580 crore guaranteed by NCGTC under ECLGS fund, which were treated as standard as on March 31, 2023 were re-classified as NPA in Q1FY24.
For the first quarter this fiscal fresh slippages stood at `1360 crore, which was 20.35% y-o-y up from Rs 1130 crore for the same period last fiscal. On a quarter-on-quarter basis, fresh slippages were 21.43% higher compared with Rs 1120 crore for Q4FY23.
ICICI Securities said the Kolkata-based lender’s AUM growth on y-o-y basis during Q1FY24 was lowest in the last six-seven quarters.
“EEB disbursements were flattish YoY but were down significantly on seasonality. Disbursement in home loans picked up post a soft Q4FY23. Retail loans declined sharply QoQ, due to repayment of one short-term loan account (`2150 crore). Overall AUM declined 5.5% QoQ, in which, EEB declined ~10% QoQ. On YoY basis, AUM grew ~7% YoY, which is the lowest level in the last 6-7 quarters,” it added.
The bank, however, expects around 20% growth in advances during the current fiscal. EEB growth is guided at 17% y-o-y. Deposits growth is guided to be slightly higher than loan growth. Credit cost to remain around 2.0% with variance of 20 basis points for FY24. Impact of Assam flood is not material, the bank added.