Bandhan Bank’s fourth-quarter numbers show a cautious approach. The bank has made an additional provision of Rs 1,000 crore in the January-March quarter, of which Rs 690 crore is COVID-19-related provisions and Rs 310 crore additional standard asset provision made on microfinance portfolio.
The provision refers to the amount a bank needs to set aside, under the Reserve Bank of India norms, against potential losses from loan accounts. In an exclusive interaction with Moneycontrol on Tuesday afternoon, Bandhan’s Managing Director and CEO Chandrashekhar Ghosh sounded confident about the bank’s financial performance.
Ghosh said the bank is fully prepared to face the COVID-19 shock. On the asset quality front, Bandhan has shown good trends in the quarter. The gross non-performing assets (NPA) as a percentage of gross advances fell to 1.48 percent in the March quarter compared with 2 percent in the year-ago quarter.
Moratorium loans
Bandhan Bank’s entire micro-loan book, Rs 46,200 crore, is under moratorium. That’s not surprising, said Ghosh citing the difficulties to reach the customers in the lockdown period. According to the bank’s presentation, 79 percent of the microfinance borrowers have an average deposit balance of around Rs 3,070 that is adequate to cover a month’s loan instalments.
The bank expects the collections to improve in about a month’s period once the lockdown is lifted. In the mortgage book, 13 percent customers by value has opted for moratorium and in the small and medium enterprises segment (SME), the ratio is about 35 percent. When it comes to NBFC-MFIs, about 59 percent borrowers in value has availed the moratorium facility.
The moratorium scheme was announced by the RBI on March 27 to help the banking sector tide over the COVID-19 lockdown phase. This permits banks to defer EMIs falling between March 1 and May 31. The bank has guided the investors that most of its borrowers have sufficient cash flows and the moratorium is availed to mainly to conserve cash.
The strength of Bandhan lies in its legacy in doing business with the low-income microcredit borrowers. Bandhan’s Ghosh has built the microfinance institution from scratch before growing to a bank in over a decade and a half. Bandhan completed five years as a bank this year and its core strength remains the customer segment it knows well, micro-borrowers.
The bank has 64 percent of its total loan book of Rs 71,846 crore tied to microcredit. The borrower segment is mostly low-income groups. The bank has taken the extra provisions to cover the likely losses on this portfolio. Given the caution, the bank shouldn’t have any problem in the near-term. But the scenario could change if the lockdown gets prolonged.
There is significant uncertainty ahead in the economy on account of the COVID-19 lockdown. The pandemic has prompted many banks to make upfront provisions to cover the likely losses. Last Saturday, ICICI Bank said it has set aside Rs 2,725 crore to cover the COVID impact. Axis Bank too has made Rs 3,000 crore provisions on COVID.
Bandhan’s high dependence on microcredit loans is in a way a boon for the bank since the recovery rate in this customer segment is high compared with medium-sized companies or large borrowers. Having said that, it is critical for Bandhan to see how the COVID-19 scenario will play out ultimately in its borrower segment. Accordingly, the bank will have to step up its strategy in the next quarter. If the lockdown gets extended further, the present calculations could go wrong.
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