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What the record says.
Bandhan Bank reported a mixed Q2 FY25 with PAT of INR 937 crore (+30% YoY) and NIM of 7.4%, but asset quality weakened as gross NPA rose to 4.7% and credit costs hit 2%. Growth was driven by secured book expansion (secured share up to 47%), with retail assets surging 91% YoY. However, the microfinance portfolio faced elevated stress, with EEB slippages rising to INR 752 crore and SMA-0/1/2 pools increasing. Management maintained credit cost guidance of 1.8%-2% for FY25 but expects elevated slippages in Q3. A key positive was the CGFMU audit resolution, yielding a net claim of INR 543 crore. Risks include prolonged MFI stress and potential margin compression from mix shift.
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Guidance to track
- Management expects full-year credit cost to remain within 1.8%-2% of advances, with Q3 potentially elevated but Q4 showing improvement.
- Overall advances growth target of 18% ± 1%, with EEB growing at 10%-12% and secured book growing faster.
- Net interest margin expected to remain in the 7%-7.5% range, with some moderation in coming quarters due to product mix shift.
- Operating expenses to average assets ratio expected to be at similar levels as FY24, around 3.7%-3.8%.
Risks flagged
- EEB slippages increased to INR 752 crore in Q2, and SMA-0/1/2 pools expanded. Management expects elevated slippages in Q3, with uncertainty on recovery timing.
- Shift towards secured assets (lower yield) could pressure NIMs. Management acknowledged potential yield stress in coming quarters.
- Despite Bandhan's unique customer share of 60%, industry-wide over-leveraging and credit freeze risks could impact asset quality. RBI actions on MFI lenders may add systemic risk.
- Tier 1 ratio (including H1 profits) at ~14% is adequate for now, but rapid secured book growth and elevated credit costs could necessitate capital raise if stress persists.
Key quotes
- We have been proactive and have taken steps over the last 18+ months to address the business risk.
- While the microfinance sector continues to face headwinds, we have been able to grow our overall business, driven by healthy growth in secured book, while containing portfolio risk for sustainable growth in future.
- Our credit cost guidance continues to remain in the 1.8%-2% for this year... and we will look at it, review it, and then come back to you with more information as we get it by end of quarter three.
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