Bandhan is one of the most successful transition stories retaining its NBFC-MFI ingredients in a universal bank format.
We visited east India for ground level checks for MFI companies and Bandhan Bank in particular. Despite some challenges emerging in the MFI business due to maturing customers and increasing competition, we came out positive on Bandhan. We believe sheer size, brand, reach and focused approach will help it retain the leadership position.
Bandhan has been able to continue as low-cost model all through its transition from a NBFC-MFI to a universal bank. Standalone, while its MFI book comprises >85% of its product mix and east/north east region makes more than half of its geographic mix, the planned merger with Gruh Finance will help Bandhan achieve both product and geographic diversification in ensuing years. Maintain buy with TP of `625 (4.8x FY21E ABV).
New trends witnessed in MFI space in east India: Ring leader concept – a new risk to asset quality, one person in a group (others are dummy) takes away the loan given to all; Attendance – turning out to be challenge in centre meetings, MFI lenders are happy with 80% attendance vs. 100% earlier; Multiple loans — a requirement for micro borrowers; Conflicting trends in weekly, fortnightly or monthly installments — most MFI borrowers want less frequent repayment cycle as it saves on time; and extra money received by SFB/universal banks over and above installment from MFI customers – deposited in savings account rather than adjusting for pre-payment.
Bandhan is one of the most successful transition stories retaining its NBFC-MFI ingredients in a universal bank format. It is well placed to deliver industry-leading return ratios with a high-yielding asset book on one side and robust low-cost deposit franchise on the other. Bandhan is a long term compounder and will be able to consistently deliver 30%+ growth.