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Bandhan Bank Ltd>
  • CMP : 264.2 Chg : 3.25 (1.25%)
  • Target : 265.0 (9.96%)
  • Target Period : 12-18 Month

23 Jan 2023

Volatile performance remains an overhang

About The Stock

Bandhan Bank was incorporated in 2015 as the RBI granted a universal banking license. The bank has a strong presence in eastern and north-eastern India with MFI loans being its forte and acquisition of Gruh finance boosted home loan book.

  • Total 54% of loans are from emerging enterprise business (EEB)
  • The bank has 1250 branches in 35 states, UTs & customer base of 2.7 crore

Overall weak performance

  • NII down 2.1% YoY & 5.1% QoQ, NIMs contracted 50 bps QoQ to 6.5%
  • Provision up 21% QoQ to ₹ 1541 crore; PAT down 66% YoY at ₹ 290 crore.
  • Loan grew 11.1% YoY led by growth in non-MFI book
What should Investors do?

Balance sheet restructuring is in progress & performance continues to be volatile due to higher stress in EEB segment. Expected stability at lower return ratios to keep stock performance muted.

  • Hence, maintain our HOLD rating on the stock
Target Price and Valuation

Rolling to FY25E, we value Bandhan Bank at ~1.9x FY25E ABV and revise our TP from ₹ 300 to ₹ 265. Steady state performance will be key for re-rating.

Key Triggers for future price performance
  • Healthy loan growth guidance (~22% + YoY) with higher growth traction in non-MFI book to aid margins and earnings growth.
  • Management indicated pressure on deposits to ease going ahead and focus will be on retail deposits.
  • Recovery from Assam relief scheme to aid top line and keep credit cost steady.
Alternate Stock Ideas

Besides Bandhan, in our coverage we also like HDFC Bank.

  • HDFC Bank is a leading private sector bank with consistent growth, operational performance and has maintained superior return ratios
  • BUY with a target price of ₹ 1920

Key Financial Summary

Particulars FY20 FY21 FY22 3 year CAGR_(FY19-FY22) FY23E FY24E FY25E 3 year CAGR_(FY22-25E)
NII 6,323.9 3,291.9 8,714.0 24.7 9,054.2 9,750.6 11,815.7 10.7
PPP 5,446.5 2,583.8 8,050.3 29.0 7,031.6 7,036.9 8,604.6 2.2
PAT 3,023.7 -2,066.0 162.7 -56.3 2,075.3 2,559.7 3,249.0 171.3
ABV (|) 91.9 63.8 97.7 - 108.1 118.6 133.3 -
P/E 14.6 -20.7 339.4 - 20.6 16.7 13.1 -
P/ABV 2.9 4.2 2.7 - 2.5 2.2 2.0 -
RoE (%) 22.1 -14.6 0.8 - 11.3 12.6 14.3 -
RoA (%) 3.9 -2.0 0.1 - 1.4 1.5 1.6 -
Source: Company, ICICI Direct Research

Variance Table

  Q3FY23 Q3FY23E Q3FY22 YoY (%) Q3FY23 QoQ (%) Comments
NII 2,080 2,282 2,125 -2.1 2,193 -5.1 Owing to slower business growth and NIMs contraction
NIM (%) 6.5 7.2 7.8 -130 bps 7.0 -50 bps Impacted on account of interest reversal
Other Income 1,033 855 712 45.1 476 116.9 Aided by income on recovery from sale of stressed account
Net Total Income 3,114 3,137 2,837 9.8 2,669 16.6  
Staff cost 687 701 519 32.3 666 3.1  
Other Operating Expenses 505 454 368 37.3 450 12.1 Continued investment in franchise kept CI higher
PPP 1,922.2 1,981.6 1,950.1 -1.4 1,552.9 23.8  
Provision 1,541.5 1,582.2 805.7 91.3 1,279.7 20.5 Credit cost increased to 6.4% vs 5.3% of advances 
PBT 380.7 399.4 1,144.4 -66.7 273.2 39.3  
Tax Outgo 90.1 99.0 285.5 -68.4 64.0 40.9  
PAT 290.6 300.3 859.0 -66.2 209.3 38.8 PAT impacted by weak topline & higher provisions
Key Metrics              
GNPA 6,965 7,962 9,442 -26.2 6,854 1.6 Asset quality steady in % terms
NNPA 1,711 2,246 2,413 -29.1 1,678 2.0  
Advances (Gross) 97,787 1,02,077 87,998 11.1 95,830 2.0 YoY healthy growth driven by non-MFI segment
Deposits 1,02,283 1,03,090 84,500 21.0 99,366 2.9  


Q3FY23 Earnings Conference call highlights

  • Target to grow housing book 25% YoY. Management hopeful of growth to pick-up in Q4FY23. Expect EEB book share to decline to ~26% on FY25E vs 37% as of Q3FY23. NIMs to inch up to 7.75% in next 2 quarters.  Advances growth to be ~22% plus (MFI 17-18% YoY growth).
  • Expect lower interest reversal going ahead. Repricing benefit to come in next quarter.
  • Other income breakup - ₹414 crore from ARC sale, ₹212 crore processing fees, ₹140 crore from bad debt recovery (vs ₹70-80 crore run rate per quarter), distribution fees ₹90 crore.
  • Business segment like CV lending, LAP, government business and expect good traction in coming quarters from these segments.   
  • In line with industry trend, SA deposits moderated due to higher spends led by festive season and few customers (above ₹2 crore) moved from SA to term deposits due to higher interest rates. SA customers above ₹2 crore are ~10% of total deposits in Q3FY23.
  • Bank received ₹917 crore as a part of CGFMU recovery from the government and expect another ~ ₹1700 crore come as a recovery in H1FY24. During Q3FY23, bank sold written of loans of ₹8897 crore at a value of ₹801 crore out of which ₹387 crore issued to bank as SRs, balance ₹ 414 crore reflected in P&L.
  • Majority of the slippages during the quarter was from already declared stressed pool. ₹622 crore recoveries and upgrades during the quarter. Fresh slippages declined by ₹700 crore QoQ (EEB: ₹ 2846 crore). Slippages expected to come down materially.
  • Gross slippages in MFI segment was ₹2846 crore ₹376 crore recovery & upgrade (from NPA accounts).
  • Total gross slippages during the quarter were ₹3265 crore gross, recoveries of ₹622 crore, net addition of ₹2644 crore and total write offs were ₹2533 crore.
  • Stagnation in housing segment is mainly due to higher interest, however with continued healthy demand and rates being stabilising, disbursements likely to pick-up. (run rate to be ~ ₹2000 crore per quarter). Majority of the housing book is in affordable segment. ATS – at ₹14-17 lakhs vs ~11 lakhs 2 years back.
  • ~70% book is at fixed rate and balance is at variable rate.
  • Weighted average tenure of group loan is one year and individual loan tenure is one and half year.




I/We, Kajal Gandhi, CA, Vishal Narnolia, MBA and Pravin Mule, MBA, M.com, Research Analysts Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.          


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