Bandhan Bank Report - Surging micro-credit stress - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

BANDHAN Bank's 4QFY21 PPOP growth (14% YoY) was lower than our estimates, while lower-than-expected provisions drove the beat in earnings. Micro-credit (EEB) portfolio witnesses surge in slippages/write-offs during the quarter as Assam portfolio continues to witness deterioration. We revise our FY22/FY23E earnings estimates downwards by 11.5/9.7%, on account of higher credit costs and moderation in loan growth expectations. Maintain BUY with revised TP of INR413. Low-cost deposit traction, along with BANDHAN's strong RoAE potential, underpin our stance.

Micro-credit portfolio witnesses enhanced stress: BANDHAN Bank's asset quality witnessed significant deterioration with pro-forma 4Q slippages/ write-offs at 11%/10% (annualised), leading to >200bps decline in NIM. Assam portfolio, as highlighted in the previous quarter, remains under stress with write-offs/GNPA at ~11%/14% and collection efficiency at ~83%. GNPAs for EEB portfolio rose to 7.6%, of which ~72% are making part payments, as per management. Housing segment also witnessed deterioration with GNPA at ~3% and another ~3% of portfolio as restructured.

Provisions surge, bank taps into COVID buffer as well: Non-tax provisions increased to INR15.9bn (~8% annualised), although lower than our estimates. The accelerated write-offs led to bank tapping into the COVID buffer (now reduced from INR31.2bn to INR3.9bn) to maintain its PCR at~50%. We increase our LLP estimates to 2.6% during FY22-FY23E to factor in the increase in portfolio stress and low PCR.

Strong loan growth across segments; deposit franchise continues to gain traction: AUM grew by 21% YoY on the back of strong growth in EEB portfolio (26.3% YoY). EEB (individual) share increased to 7.6% of AUM. Housing loans grew by 9% YoY, although disbursements grew sequentially by 27%. Deposits grew by 37% YoY, with improving CASA ratio at 43.4%, bringing down cost of funds by ~30bps sequentially.

Shares of Bandhan Bank Ltd was last trading in BSE at Rs.296.1 as compared to the previous close of Rs. 297. The total number of shares traded during the day was 1271552 in over 17692 trades.

The stock hit an intraday high of Rs. 304.8 and intraday low of 285.9. The net turnover during the day was Rs. 377119100.

Source : Equity Bulls

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