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Business growth robust; Retail deposit mix improves further
Bandhan Bank (BANDHAN) has released its business update, highlighting key numbers for 4QFY20. Key insights below:
* 4QFY20 advances (on-book + off-book) were robust at ~9.7% QoQ to INR718b despite the lockdown imposed in the last week of Mar’20.
* BANDHAN’s collection efficiency for the MFI portfolio during 1 st Jan- 21st Mar’20 stood at ~98.7% (v/s ~98.1% in Dec’19). Also, total overdue (0+dpd) in 4QFY20 stood lower than Dec’19.
* The bank has reported strong deposit growth at 32% YoY/3.9% QoQ to INR570.7b despite deposit withdrawal of INR4.6b by the state government in Mar’20.
* CASA deposits were strong at 19.4% YoY/11.6% QoQ to INR210b. Thus, CASA ratio improved to 36.8% (v/s 34.3% in 3QFY20). Also, the proportion of retail deposits improved by ~220bp to 78.4% of total deposits.
* LCR ratio for the bank stood at ~161% (v/s 160.3% in 3QFY20). BANDHAN maintains surplus liquidity on its balance sheet at INR84b. The bank is in a position to draw additional liquidity up to INR18.1b under the MSF window.
* Other Highlights: CET-I ratio improved to 25.5% (v/s 23.1% in 3QFY20) while CAR improved to ~26.7% (v/s 24.7% in 3QFY20).
* Valuation and view: BANDHAN has reported strong deposit growth numbers in an environment where faith of depositors is already fragile. The bank has also maintained strong liquidity surplus with LCR of 161%, thus, placing itself in a comfortable position. While near-term concerns on MFI portfolio remain, BANDHAN has nevertheless been able to improve its recovery rate. Further, growth trend in micro-banking deposits highlights BANDHAN’s comfortable position to recover dues from its MFI borrowers, even as the environment remains uncertain and delinquency rates increase. We, thus, revise our TP to INR350 (2.9x Sep’21E BV) and maintain Buy rating on the stock.
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