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Sluggish earnings, however outlook intact

Bandhan Bank operates as a commercial bank, offering checking accounts, savings deposits, and money market, mortgage, and term loan services, in addition to card facilities and Internet banking services

• Net interest income (NII) remained flat sequentially, at Rs 2,491cr in Q1FY24 (+0.8% QoQ and -0.9% YoY), impacted by higher interest expenses and slippages.

• Gross non-performing assets (GNPA)/net non-performing assets (NNPA) ratios stood at 6.76%/2.18%.

• We expect advances and deposits to grow in the near term, led by retail assets and commercial banking. The management is confident of maintaining net interest margin (NIM) at 7-7.5% in FY24, while improving the current account savings account (CASA) ratio and credit cost . With its aim to diversify its asset portfolio and continuous investments in People, IT and expansion will help to achieve long term growth. Hence, we reiterate our BUY rating on the stock, with a reduced target price of Rs. 269, based on a 1.6x FY25E book value per share (BVPS).

Stable NIM, supported by higher interest income growth

In Q1FY24, NII increased a marginal 0.8% QoQ (-0.9% YoY) to Rs. 2,491cr on account of higher yield of funds (+130bps QoQ), partially offset by a rise in the cost of funds (+60bps QoQ). As a result, NIM was stable at 7.34%. Pre-provisioning profit fell 13% QoQ to Rs. 1,562cr, led by a decline in non-interest income and higher operating expenses owing to the addition of new branches. Consequently, profit after tax (PAT) fell 18.7% QoQ to Rs. 721cr

RBI circular on ECLGS advances impacts asset quality

Total advances declined 5.5% QoQ to Rs. 103,170cr, primarily due to de-growth in loan disbursement in the Emerging Entrepreneurs Business (-9.7% QoQ) segment, on account of weather disruptions in some states, unwanted seasonal factors, and the repayment of Rs. 2,151cr by a single large account in Q1FY24. At the same time, loan disbursement in the housing finance and commercial banking segments sequentially grew 1.4% and 6.7%. The bank expects advances to grow over 20%, supported by 17% loan growth in microfinance institutions in FY24. GNPA/NNPA ratios weakened to 6.76%/2.18% (vs. 4.87%/1.17% in Q4FY23), mainly due to the classification of ECLGScovered advances as non-performing, as per the RBI’s circular released in April 2023. PCR stood at 69.2%, compared with 76.8% in Q4FY23. Due to seasonal impact, the CASA ratio deteriorated to 36.0% from 39.3%.

Key concall highlights

• The company aims to grow advances ~20%, with deposits to increase at a higher rate than advances, a CASA ratio of 40%, and NIM of 7-7.5% in FY24.

• The bank added 0.7mn customers (reaching 30.7mn) and 131 branches (total of 1,542) in Q1FY24

Outlook and valuation

Bank’s earnings performance was relatively muted in Q1FY24. However, the bank has made great strides towards diversifying its asset portfolio. The bank is also committed to improving the quality of its assets by lowering slippages and improving recoveries in the near term. A gradual improvement in rural areas, strategic expansion, and continuous investments in people, infrastructure and technology should support longterm growth. Hence, we reiterate our BUY rating, with a reduced target price of Rs 269, based on a 1.6x FY25E BVPS.

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