Bandhan Bank Limited analyst Q&A

The first question is from the line of Vatsal Parag Shah from Knightstone Capital Management.

A couple of bookkeeping questions. So what will be our proportion in Karnataka and Tamil Nadu as a percentage of advances?

So Tamil Nadu, we have a share of only less than 1% of advances and Karnataka is 1.1%. So both are very negligible. And the DPD book is also very low. And I would say the collection efficiency is also around 97% in these 2 states. So we are not that much impacted into whatever is happening in both the states.

And these are the percentages of total EEB advances.

Yes. And number two is that you have seen that in both the states, the regulations have excluded the banks. The banks are not a part of the regulation. So of course, this will have some, I would say, impact on the people or the borrowers there , but in general, the other regulatory measures are not applicable for us (banks).

Got it. And secondly, what will be our fixed book percentage?

Are you talking about fixed rate book?

Yes, fixed rate.

It's around 55%. 55% of our loan book is around fixed rate.

The next question is from the line of Piran Engineer from CLSA.

Congrats on the quarter in these turbulent times. Just a few questions. Firstly, on interest reversal, what was the interest reversal this quarter versus a similar number in 4QFY24?

Sorry, could you repeat that question?

Interest reversal.

Interest reversal, Rajeev, for the quarter.

Yes. Give us a couple of minutes. We'll come back on this question.

Okay, sure. And secondly, what sort of impact do we expect on our deposit cost after this rate cut we've done on SA. As well as, overall, we are seeing term deposit rates for the system, wholesale and retail, going down. Can you guide us to some sort of cost of deposits for FY26?

Yes. So we have also reduced our interest rates on both savings bank and term deposits. So the rationalization has already been taken place. It will come effect from 1st May onwards. So we are expecting that around 30 basis points where we were giving on t he highest term deposit bracket, so 8.05%, it has come down to 7.75%. But of course, the transmission in the deposit will not take place immediately. It will just take place as and when this deposit matures and renews. But in the advances section for that year, almost close to 40% of our books, which are on the EBLR Repo-linked, the transmission has already been passed. So definitely, I can say some effect will be there for the first 2 quarters. But going forward, it will be well managed.

Yes, Piran, we don't have a specific guidance on the exact cost of deposits reduction. But as sir said, there are actions being done both on the savings and term deposit to see in certain buckets where we can actually reduce the cost. And I think the results of that will come through the year.

Okay. And I think I heard sir say 40% is EBLR-linked Repo loans?

So I'll clarify that. The fixed rate loans, which means that there is no change due to any change in the market rate, is close to 55% of the portfolio.

And EBLR?

Nearly 5% is only MCLR linked and all the rest are EBLR Repo linked

Piran, on your previous question on interest reversal. During the quarter, we had INR69 crores as interest reversal.

And what was it on Y-o-Y comparison?

We'll get back to you, Piran, on that. Actually, we don't have the asked details on hand

Sure, sure. And also just this MCLR, EBLR, I think there was some -- you all were having a discussion. Can you just clarify, out of that 45% floating rate, how much is MCLR, how much is EBLR?

So to give you, 55% is fixed. And of the balance 45%, our EBLR linked Repo is 41% and MCLR linked loans is just 4%-5%.

Got it. Got it. And just my last question on your MFI customers, now around 8% of them are GNPAs. What percent of them would be actually paying some amount of EMI?

Vikash, can you help?

So in simple words, collection efficiency from the GNPA book.

Yes. So in March, we collected around INR80 crores from this collection which has been there. But I think....

This is Vishal here. Overall, from our 8% number, close to 25% of th e 8% is paying us some amount. Some amount comes through 1 EMI or less than that, but some amount keeps on coming from our GNPA.

Yes.

The next question is from the line of Mohit Jain from Tara Capital Partners.

Sir, my first question is with regard to the SMA book for the EEB portfolio. If I'm looking at West Bengal, this quarter, we are seeing a slight increase there in the SMA -0 bucket. So what can be the particular reason behind that? And also considering the fact, in the month of April, there have been some disturbances in some districts of West Bengal. So how adversely has it further been affected by it?

One is because of the holidays. The last 3 days were holidays in West Bengal, as you all know. So whatever the demand raised during this period, the borrowers could not pay. But this has been eventually corrected. Most of the accounts have been eventually corrected.

Sir, the trend we are seeing in the current month because of some -- there were some media reports that in some districts there were some kind of disturbances. So any effect it is having on our collection efficiency?

Murshidabad district. So Murshidabad District, has 4% NPA. As of April, about 88% of accounts are regular. The SMA-0 accounts make up 6%, while SMA-1 and SMA-2 accounts are 1% each. Currently, the total outstanding is INR 2,151 crores, with only INR 91 crores classified as NPA. The total delinquency book is very small.

Okay. And sir the other question which I'm having is on the long-term guidance which we have given that we'll be looking at our credit cost of somewhere near 1.5% to 1.6% over the next 2 to 3 years. And I guess, you have earlier said that -- in the earlier conversations it has been said that for EEB book, our target is around 2% to 3% in terms of the credit cost. Sir, if I'm looking at Slide 21, it seems that the loans which we have disbursed over the last 1 year, the NPA in those books is coming at 4% -- 3.5%, 4%, which is, again, very much on a higher side in respect of even the recent originations. So now if this is the trend we are having in the recent origination, what gives us the confidence that over a longer period of time, the NPA of the credit -- NPA of the EEB book is going to come down to somewhere near 2% to 3%, sir?

No. So if you look at those figures, you see it was 4% in financial year 24, Q3 and Q4. But if you look at the financial year '25 figures, it has come down from 2.8%, then Q2 is 1%. Q3 and Q4, just the Q3 is 0.1% and Q4 is 0. So gradually, there is an impr ovement also. And as what Rajeev has also said that in the overall DPD book also, we are finding that there is an improvement. Sequentially, it is coming down, almost INR223, it has already come down. The quality of these advances, we are now imposing the guardrails. As you all know that for the day, we had our own guardrails. And apart from that, the MFIN guardrails have also been imposed. So this definitely is impacting for the 1, 2 quarters, where the business growth will get a little bit impacted. But the stress level will also be contained to a large extent. So going forward, we believe that the loan loss provisions would be comparatively lesser, especially the incremental loan loss provisions. And there will be a growth in the business. We have also kept a guidance of around INR5,000 crores of incremental growth in this EEB segment. So overall, with the growth in the business and also with the decrease in the incremental loan loss provision, the credit costs will improve.

And I think just to supplement a couple of other points. One is if you look at our number of lender criteria, we've already been sort of complying with to a large extent, 92% of our book is Bandhan + 2. So to the extent of that, the overleveraging situatio n in our portfolio is fairly limited. And also, as you know that most of these loans are 1-year tenure, and therefore, I think the book that is of FY '25 is a more reflective book, which will basically result. Of course, the risk in the industry is elevated, and we do expect the next couple of qua rters to be challenged. But thereafter, as the improvement comes through, I think we'll be in a good boat to be able to come out of that.

Even if you look at our overall credit cost also, so 2.9% we could manage it for the entire year, while the Q4 credit cost is quite high. And the delinquency book, as you can see in the mentioned slide, that it is actually coming down. The loans which are given in financial year '25, their quality is much better.

So we expect the microfinance credit cost to come down from the current levels. And because of the change in the mix towards higher secured, we should also get further benefit, and that is why the guidance of 1.5% to 1.6% over the next 2 to 3 years.

Understood. Just sir, one clarification. You said about a figure of INR5,000 crores, that is the EEB disbursement we are looking for the current year, or the AUM growth for the current year, sir, FY '26?

It's the net growth of the EEB portfolio what we are looking at.

Yes. So net AUM growth of INR5,000 crores in the EEB book for the current year FY '26, sir?

Correct.

The next question is from the line of Anand Swaminathan from Bank of America.

I have a couple of questions on the EEB book. So just circling back to Slide 19, where you have shown the West Bengal, Assam and rest of India collection efficiency. Just wanted to understand which are your worst performing states, which are dragging down your collection efficiency to 98.2%. So that's the number one question. Number two, in terms of disbursal rates, I get the INR5,000 crore number. But in terms of month or quarter, when do we expect we getting back to a normalized disbursal level during the year? Those are my 2 questions.

To answer your first question, our states which are not performing the way performance has happened in the Eastern part are Maharashtra, parts of Gujarat, and Tamil Nadu and Karnataka, which is small for us. These are 3-4 states which are not doing well; parts of Gujarat and Tamil Nadu and Karnataka. On the second question, I think the first quarter is going to be a muted one. And I think quarter 2 onwards, the disbursal should pick up. But by the end of quarter 3, I think we will have, hopefully, a normal year -- quarter the way it was there prior to a couple of years, and that should stabilize over quarter 3 and quarter 4. But first 2 quarters, specifically the first one, will have a muted growth only.

Sure. Just to clarify, Maharashtra, Gujarat should be close to 96% collection efficiency even in March?

March was slightly better, 96%, 96.5% on the collection efficiency front. Tamil Nadu was 96% and Karnataka similar 96.5%.

Okay. And is there anything localized, which is the problem, which is keeping these states a problem? Or it's just the overleverage issue which is extending?

Primarily, at the pan-India level, it's a similar overleverage issue. And like Rajeev clarified also that Bandhan + 2 relationship, for us, it's much, much higher than the counterparts and it's at 92%. And there are small parts like Murshidabad has come up in the last 2 months only. So that has disrupted a bit for a couple of months. But we don't see this continuing for long, because then things stabilize. And then after 4, 5 weeks' cycle, it comes back to normalcy. So there have been localized disruptions up and running in some places, but not so rampant. The impact is more in Karnataka, Tamil Nadu over the last 3- 4 months.

Sure. And lastly, in April, since the implementation of the new guardrail, has there been any change in collection efficiency?

Just can't get you, please. Sorry, Anand, can you repeat that?

In April, after the implementation of the new guardrails, has there been any change in collection efficiency in any of the states?

So collection efficiencies for the month of April have remained stable. However, like the impact of guardrails have been more so on the disbursal side with 3 lender norm, the maximum you could give, obviously, there are other companies who also grant loans to the same customer. So that has got -- but I think over a period of time, things will stabilize. Otherwise, we don't see any collection efficiencies really dipping down in the month of April apart from 1 or 2 places, which we spoke about earlier.

Because these are mostly weekly repayments, so holidays actually sometimes temporarily affect the quality of the asset, but that normally gets repaid. And percentage -wise, while the delinquency is high in Tamil Nadu and Karnataka, but the overall book size is very, very low. It's only near to INR400 crores around in these 2 states.

The next question is from the line of M.B. Mahesh from Kotak Securities.

Sir, just a question on this West Bengal again. You kind of indicated, what is the current month performance as we speak? Your gave a number. I just wanted to clarify.

On the collection efficiency -- sorry, which parameter?

No. The SMA -0, 1, and 2. I think you had mentioned a number that the performance had improved in April. Just trying to check what was the comment on that?

April number...

Obviously, there is still a month to get closed. So we have still collections going on...

But I can tell you, 2 days back, the slippages percentage has actually come down. So almost I am having a positive of around -- marginal positivity there compared to March.

But Mahesh, if you look at the SMA position as at March end compared to December end, definitely, I think there is an improvement. I think the overall SMA book for EEB, we are seeing some bit of a reduction.

Okay. Second question, sir, we are doing about 4% credit cost right now on an annualized basis for the last 4 quarters. In your assessment, how does that move over the next 2 quarters given the near-term numbers that you are looking at in the slippages on the EEB book?

So I don't think, Mahesh, we give specific guidance on a quarterly basis. But I think as we have said, due to the risk which is still there in the EEB segment in the industry, the MFI segment in the industry, and with further tightening of the existing criteria from 4 to 3, I think it's natural to expect the next 2 quarters that there will be some continued stress, albeit we do expect some marginal improvement quarter-on-quarter. But as Vishal earlier mentioned, by Q3 is when we expect, I think, some sort of turnaround to happen.

Okay. My last question, sir, you had given us a rough indicative ROE decomposition of how we should look at the franchise in the medium term. You have the margins today, which is about 7%. You are indicating that number will be down by about 20 basis point s? Is that how we should read it?

So maybe, Mahesh, I can give you a broad indication on that. I think as our secured mix increases further, over the next 3 years, we should expect, I think, the NIMs to come down by, say, another 50 to 60 basis points over the next 2-3 years. But what we are doing to offset some of the impact is focus on other income, where we do expect, say, another 20 basis points or so increase to come through. I think the fee income will be also aided by newer initiatives such as transaction banking. We've recently got some trade products that we've launched. So those should start helping us as well As I mentioned, I think our costs, we will have to invest further to grow our secured book. So over the next 2 years, I think we will invest further, another 10 to 20 basis points increase. But thereafter, I think the efficiencies of scale should start coming in. And then credit cost is where we should start seeing a big reduction, right? And as a result of which -- all of these lines is where we are saying from the current level -- I mean, this financial year, we had 1.5% of ROA. The latest quarter is lower. But from there, on a glide path basis, we expect to reach around 1.8% to 1.9% of R OA by the end of the next 2 to 3 years.

And most are containing the slippages. So we are not expecting the slippage -- because this year, Q4, the EEB segment slippages was almost 10%, which will substantially come down. That we are expecting.

So Rajeev sir, just my clarification is, based on your numbers, you seem to be projecting what looks like peak ROAs of about 1.8%, which means that the ROEs are about 14%. Even if you have some disturbances to the portfolio, the corridor of ROA seems to be much lower that you seem to be targeting. Just trying to understand if the assessment of the numbers are right.

Yes. So I think, look, it just depends upon the pace of the transformation. It is a material transformation we are doing to improve the secured mix, which takes time. And as we're saying, we are investing to be able to grow that. So the pace of the transformation and how exactly these businesses grow up, and at the same time, the pace of the reversal of the cycle in microfinance. So it will really depend upon these 2 factors. But what we have not factored in this cycle is, let's say, further improvements to cost of funds. What we've not factored is further operational efficiencies that we can drive, because we are actually actively digitizing and bringing a lot of automation across our processes, both from a customer perspective and internally. So some of these factors should give some further augmentation.

So I would put it very similar that if you look at the annual ROA annualized on a full year basis, it is 1.5%. Q1 and Q2 were good. Q3 and Q4 were bad. So the reverse will happen for this year. Q1 and Q2 will be comparatively a little more challenging, whereas Q3 and Q4 will be good. So going by the same philosophy, I think this 1.5%-1.6% can be maintained for this year.

Overall, the larger transformation and the transition as MD pointed out, that will take a couple of years to come through. And obviously, at this point, we are targeting that kind of an RO A. And as it ramps out maybe over the next 4 to 6 quarters, we will relook at it and then come back to you with a fresh guidance.

The next question is from the line of Jai Mundhra from ICICI Securities.

Yes. So maybe I'll take that, Jai. Rajeev here. So as you've seen the RBI clarification, the circular came through in February '25. And as part of which we have assessed and we have looked at -- and a large part of our EEB book, which is both across group lending and as well as SBAL sort of fulfils the criteria which I mentioned, and we have been able to take the benefit of that in the RWA calculation. We are cognizant of the change that is coming from 1st April, which is for lending to NBFCs. And I think that should give some further benefit to the RWA calculation. That's not yet included in the March number, because that's applicable only from 1st of April. But the improvement on the total CRAR of 18.7%, w hich is the number now compared to the earlier numbers, is really based on the February clarification.

New clarifications that has come.

Sure. So the EEB proportion is taken care of, right? I mean the entire -- whatever the benefit was there on EEB on individual as well as...

Definitely, significant improvement has happened only in the EEB. That is correct. Yes.

Sure. And secondly, I mean, CGFMU, on incremental disbursement, are we taking CGFMU insurance or we have discontinued that thing?

At present, we are not taking it. Yes, Ratan, you can give further details

So you see, we have to do our own calculation of whether it is beneficial to the institution at this point going forward or not. We are not averse to it, but we are evaluating at what stage we would like to look at it, because there is a threshold value, b eyond which if the quality goes ba d, sort of it makes beneficial for us. So that's the stand as of now. We are evaluating very actively.

Sure. And of the non -EEB slippages of INR3.5 billion, how much was from home loan and maybe the wholesale segment?

So wholesale segment, the slippages ratio is very low. It is only 0.6% in the Q4. And housing finance, of course, slippages has been 2.3%, a major part from the legacy books, what we have acquired from GRUH Finance for that year. So that is the broader number.

I think just to clarify on housing, while the gross slippage comes to 2.3% during Q4, a large part of it gets collected during the month. And on a net basis, I think we end up at around 0.6%-0.8% on an annualized basis.

Sir, would you have the rupees crore number? I mean the percentage is sometimes tricky, or I can just multiply.

The housing on a net basis was only INR70 crores of net addition on a gross slippage of INR180 crores.

Okay. Sure. And lastly, sir, opex growth, while I take your -- I mean, the last quarter and last 2 quarters, we had said that the opex growth will be higher than loan growth. But this is primarily because new businesses, they are more opex heavy, right? That is how it should be. I mean, it is also a function of the loan mix change apart from investments that you are doing in maybe people and processes?

So I can take that. I think there are 2 or 3 key pieces. One is the newer businesses or the secured business, where we're dialling up the focus, require investments in people and technology, because we are making sure that we have the right talent, in the right areas, in the right geographies, in the right segments. And also, we are investing in the latest state -of-the-art technology. As you know, last year, we had the core banking system upgrade, and now we are focusing on further systems like loan origination, which is going to -- with the state-of-the-art LOS providers such as Salesforce, and we are going to make sure that it has an enhanced cust omer experience that comes through. So I think that is the focus in terms of both the talent as well as the technology that is being deployed. And at the same time, I think for the distribution network in terms of branches, to be able to drive our deposit growth.

So actually, yes, basically, 3 things. One is that we have opened many branches in the last quarter of the previous financial year, not this year. And that expenses are adding up, but we will definitely get the benefit of business from these branches going forward. The second is that the investment in IT. The depreciation cost is a major opex cost, but that's, as Rajeev has said that both were necessary and the business will also come once these are stabilized for the year. And the third is the manpower cost, because we wanted to invest in people. So in many areas where we have yet to start business, we have taken people. Like in credit cards, we are going to launch soon, but we have already taken the resources, major skilled resources. Similarly, in the other areas also, there has been some people recruitment take place. But yes, the strength of this will be derived in the coming months to come.

Lastly, sir, just a small clarification. I think in the SMA-0 -- increase in SMA-0 in West Bengal, you have mentioned that, that has also rolled back, right? So that would have come back to maybe -- let's say, 0.9% was the Q3 number. Has that come to that level? Or it is only -- I mean, you said that 2.3% rise -- rise from 0.9% to 2.3% is because of holidays and because of some localized turbulence. I mean, how does that stand? I mean, in percentage terms, if you have that number?

So what we have done, see, 30th, 31st being a holiday and was a holiday demand date. That's why SMA0 has elevated from 0.9% to 2.3%. We collected 92.7% of the billed amount and out of 8.3% which got forward, we collected 95% of that in the next 7 days. So that 1 week collection has already come through. So we'll not see this kind of an elevation. It's a onetimer. And I think most of it has got collected thus far. But again, this month, we had 4, 5 holidays.

If you see repayment period, you see in our EEB book. So for these group loans, we have a weekly repayment period, and that do get affected whenever there is a holiday, and more so if there are consecutive holidays. So every month -- this month also, we are having 3, 4 days like that holidays. So it will be there, the elevated portion, if you take the data on that particular date, it will be shown a little bit elevated. But overall, there is no stress because those things get collected.

So you see SMA -1 and 2, those numbers have come down, and this 31st of March was one number. And if it happens again on the last day of the month, obviously, the last day billing gets impacted. Other wise, over the period of the month, we collect. So this one, we specifically focused. In the next 1 week, we were able to collect 95% of the 7.3% which has gone through in SMA0 bucket. So then it became typically the same number of what typically goes through each cycle.

The next question is from the line of Param Subramanian from Investec Capital.

So my question is mainly on looking at next year, right? So we've given guidance for the next 2 to 3 years. But if we look at next year specifically, would it be reasonable to say that ROA will be under pressure because of what I heard on basically that we are investing, so operating...

I have told you very clearly, if you look into the current year, Q1, Q2 was good. Q3, Q4 was comparatively bad for the year. And overall ROA, we have maintained at 1.5%. So this year, it is just the reverse. Q1, Q2 will be a little bit bad, but Q3, Q4, we are expecting to be good.

Yes, sir. Sir, but at the same time, in the first 2 quarters, our operating profit profile was way higher. And it looks like it has reduced quite significantly, right? So is this...

Q1, Q2 of this quarter was quite good. So operating profit, income, EEB loan book, everything was quite good for Q1, Q2. But Q3, Q4, suddenly, the situations have a little bit become, I would say, challenging. So this trend is continuing, but it is diminis hing. So I think by Q2, all these problems will be more or less addressed. So Q3, Q4 will be a good year for doing business. So we are expecting the same way, the same trend will be there in the ROA.

And I think further to your question, Param, you're right that the secured mix percentage has gone up. So to that extent, right, the NIM -- margin pressure are there. But as sir mentioned earlier, there are actions being taken such as reducing the cost of funds, right, which should give some bit of an offset. So we'll actively look at the avenues available to us. But yes, structurally, we're moving towards a higher secured mix. So I think the impact of that will be there.

Okay. Got that. Just on this bit again on operating profit, right? So we are at about -- if we look at the last couple of quarters, if I look at operating profit as a percentage of assets, it's at about 3.3%, 3.4%. And that is lower than where we've generally operated. And if I heard correctly, we're talking about mix shift bringing margins down and still investing in the business. So how does this number look, say, how is this going to evolve over the next year specifically and then beyond that?

Yes. So look, our full year ROA was 1.5%. Our Q3 was 0.9% and Q4 has been 0.7%, largely impacted because of the elevated slippages in micro. But let's say, as I mentioned, once the cycle starts to turn for microfinance, we should see some relief coming fro m there and the improvement and more normalcy. And at the same time, as the capabilities that we talked about, which will give us higher other income and various other revenues start to kick in, we should get benefit of that. So it's sort of a glide path from the current levels to reach the 1.8% to 1.9% over the next 2 to 3 years, right?

Got it. One more question, if I may. For this year, the margin pressure on the margin line, how much would the pressure because of the interest reversals have been, say, broadly basis points? It's okay if I can get this offline as well.

So as we have told that almost 41% of our loan book, we have already given the effect, which is under EBLR linked Repo. The fixed rate loans will largely be unimpacted until we decide a change in the interest rate. But yes, one thing is there that the effect of the benefit on account of reduction in interest rates and deposits, that will only come over a period of time. I t will not be immediate.

I got that. Sir, I was asking on the interest reversals on the slippages that would have some margin pressure, so...

Yes, that's a small amount.

The next question is from the line of Ankit Bihani from Nomura.

I just wanted to know what is the yield on our microfinance portfolio and non -microfinance portfolio currently?

I think the differential between the two yields is roughly around 10%. So EEB is I think around or upwards of 20%.

Yes, 20% and 10%.

Okay. And the other part was that what has led to the negative tax in this quarter?

Yes, I can clarify that. So as part of the review of the tax, I think there are 2 aspects that we have accounted for. One is what we call as the deferred tax asset on the ESOP. So as you recollect, in the last quarter, we had an accounting impact on ESOP close to around INR166 crores. And as part of the accounting review, I think the deferred tax asset on that got created in this particular quarter. So that is roughly around INR61 crores. And in addition to that, there is one of the old years' income tax provision, which has been released.

Assessment has been completed.

The additional amount has been released.

So in total, about INR87 crores between these 2 items.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

Okay. We once again thank you all for attending this Q4 earnings report of Bandhan Bank. Just to conclude, I can say that if you look at the year's performance, the total financial year performance, so there has been a good increase in our net profit and also operating profit. And probably we are one of the very few financial institutions having sizable assets in microfinance to have been able to give these results for the year. That's one plus point I would just like to tell all the analysts. Thank you all.

Thank you all for joining in. Thank you very much.

Thank you. On behalf of Bandhan Bank, that concludes this conference. Thank you for joining us and you may now disconnect your lines.