ICICI Securities maintains Buy rating on Bandhan Bank

Assam relief benefit not factored in credit cost estimates; Q4 seasonally strong quarter

Assam government, in its state budget of 2022-23, has earmarked Rs25bn towards Assam Microfinance Incentive & Relief Scheme. We believe this is an additional budgetary support over and above Rs16-17bn disbursed till date in FY22 towards Category-1 customers out of earlier allocation of Rs20bn. Also, the progress of the scheme will be further reviewed through the course of this fiscal and any further financial assistance required will be provided through budgetary or non- budgetary support. Bandhan Bank (Bandhan) has not considered Assam relief recovery benefit in its assumption of provisioning requirement. Q4 is seasonally a strong quarter for the bank. We believe improved collection efficiency should curtail forward flow into slippages and moderate EEB stress pool. Also, disbursement growth is expected to be encouraging both for EEB business as well as housing finance. Maintain BUY with an unchanged TP of Rs390.

- Assam Microfinance Incentive and Relief Scheme - Further budgetary support of Rs25bn announced: Assam government in its state budget of 2022-23 has earmarked Rs25bn towards Assam Microfinance Incentive & Relief Scheme. This seems to be an additional budgetary support over and above Rs16-17bn disbursed till date in FY22 towards Category 1 out of earlier allocation of Rs20bn.

In Assam Budget 2021-22, it had indicated support required to the extent of Rs75bn with an intention to clean the outstanding debt. We believe the progress of the scheme will be further reviewed in Dec'22 and any further financial assistance required will be provided through budgetary or non-budgetary support.

- Category-wise benefit under Assam Microfinance Incentive and Relief Scheme: i) Under Category-1, benefit to customers with good credit discipline, is being provided to almost 1mn eligible beneficiaries of the state with an outlay of Rs20bn. The disbursement under this category will be completed before this Bohag Bihu (mid-April'21) by providing incentive in the remaining 7 districts of Assam. ii) Under Category-2, borrowers whose payments are overdue by up to 89 days, the government will pay their overdue amounts. All such borrowers will also be provided with incentive for good credit culture. There are around 0.6mn such borrowers to be benefited. iii) Category-3 contains all the stressed borrowers whose account have become NPA.

- Bandhan's Assam portfolio snapshot: Bandhan has exposure of Rs59.8bn in Assam of which 23.4% is NPA, 5.7% in SMA-2 pool, 3.1% in SMA-1 and 30% restructured as of Dec'21. Collection efficiency in Assam has improved from 82% in Sep'21 to 96% in Dec'21. In 9MFY22, it has disbursed Rs16.6bn in Assam.

- EEB provisioning at Rs91bn vs EEB stress pool of Rs170bn: Overall, as of Q3FY22, EEB stress pool moderated to Rs170bn, equivalent to 30% of the book (from 195bn QoQ) including NPAs at Rs79bn (Rs73.3bn), restructured pool at Rs57.8bn (Rs69.2bn), SMA-2 pool at Rs16.6bn (Rs13.5bn) and SMA-1 pool at Rs16.7bn (Rs38.6bn). Through the assessment of stress pool, it arrived at an overall provisioning requirement of Rs91.7bn (vs Rs95bn).

This is post estimated recoveries of Rs50bn from the stress pool till Jun'22 (based on current collection trends) and CGMFU recovery of Rs25bn (be claimed post Mar'22). It has not considered Assam relief recovery benefit in its assumption of provisioning requirement.

We believe collection efficiency would reach normalised level in many regions by Mar'22 and over stress pool should moderate further. We expect normalised level of provisioning of 1.8-2.0% over FY23E/FY24E.

- Q4 seasonally strong with respect to growth: In Q3FY22, disbursements in EEB individual segment more than doubled QoQ to Rs62bn (Rs26.7bn in Q2FY22). EEB group disbursements too have risen more than 35% to Rs141bn. Loan portfolio (on book + off book + TLTRO + PTC) thereby grew 7.8% QoQ for Q3FY22. We expect disbursements to sustain traction and loan portfolio to grow with similar momentum in Q4FY22 as well. We are building-in credit growth of 10%/16%/18% for FY22E/FY23E/FY24E, respectively.

- Housing loan disbursements gain significant traction: Encouragingly, housing loan disbursements gained significant traction, as high as Rs22bn. After several quarters of consolidation, housing book grew 7% QoQ in Q3FY22 as disbursements were encouraging at Rs22bn (compared to
Shares of Bandhan Bank Limited was last trading in BSE at Rs. 303.15 as compared to the previous close of Rs. 303.15. The total number of shares traded during the day was 370251 in over 6548 trades.

The stock hit an intraday high of Rs. 313.30 and intraday low of 301.60. The net turnover during the day was Rs. 113121758.00.

Source : Equity Bulls

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