Bandhan Bank Rating: Neutral – In a position to better growth trajectory

Collection trends in the total portfolio improved to ~96%.”> Collection trends in the total portfolio improved to ~96%.

Bandhan Bank released its quarterly business update highlighting the trends for Q4FY21. Advances (on book + off book + TLTRO investments) grew by 21.2% y-o-y (8.5% q-o-q). This growth would have been enabled by both the MFI and HFC book as economic activity is recovering. BANDHAN continues to report strong (36.6% y-o-y/9.5% q-o-q) deposit growth of ~Rs 780 bn, led by robust (~61% y-o-y/~11% q-o-q) growth in CASA deposits. The CASA ratio improved by ~50bp q-o-q to 43.4%. The proportion of Retail deposits stood at 79% v/s 81% in Q3FY21 and 78% in FY20. The LCR ratio stood at ~122% as of FY21.

BANDHAN’s collection efficiency in the MFI portfolio has recovered to 95% for Mar’21 (v/s 90% as of 16th Jan’21 and 92% in Dec’20). Improvement in MFI collection trends is in line with other MFI players. On the other hand, collection efficiency in the non-micro portfolio stood stable at 98% (in line with past trends). Collection trends in the total portfolio improved to ~96%.

Valuation and view: BANDHAN has reported strong improvements in collection efficiency despite ongoing macro challenges and election-related uncertainties. On the business front, it reported healthy loan growth, supported by the underlying recovery trends, and is well placed to better its growth trajectory. The bank continues to demonstrate strong traction in liability accretion led by CASA. With rising COVID-19 cases and fears of another lockdown we remain watchful on the asset quality of MFI players. However, BANDHAN has limited exposure to key COVID-19 impacted states (it has only 5% of its branches and 4% of DSCs in Maharashtra). We maintain our Neutral rating with TP of Rs 370 per share (2.4x FY23e BV).