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Healthy asset quality, attractive valuations…

Bandhan Bank operates as a commercial bank that provides checking accounts, savings deposits and money market, mortgage, and term loan services. It also offers card facilities and internet banking services. Bandhan Bank merged with Gruh Finance on 17 October 2019

* In Q4FY23, net interest income (NII) grew 18.8% QoQ to Rs 2,472cr and net interest margin (NIM) expanded 80bps QoQ to 7.3%, aided by improvement in yield.

* Gross non-performing assets (GNPA)/Net non-performing assets (NNPA) ratios stood at 4.9%/1.2% (vs. 7.2%/1.9% in Q3FY23), while provision coverage ratio (PCR) was 76.8% (vs. 75.4% in Q3FY23).

* We expect robust growth in advances and deposits, led by the retail segment. Improving asset quality, strong collection efficiency, adequate capitalisation, and lower provisioning augur well for the bank’s performance. The stock is trading at attractive valuations. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs. 305 based on 1.7x FY25E BVPS

Strong sequential PAT growth, aided by lower provisioning

In Q4FY23, interest income grew 12.1% QoQ to Rs. 4,268cr while interest expense rose 4.0% QoQ to Rs. 1,796cr. NII improved 18.8% QoQ to Rs 2,472cr and NIM improved 80bps QoQ to 7.3%. Yield improved due to hike in the lending rate and lower interest reversals. Other income declined 39.1% QoQ. Hence, total income was broadly flat sequentially. Operating expenditure increased 9.5% QoQ to Rs 1,305cr, because of higher employee spending (up 5.9% QoQ). Pre-provisioning profit fell 6.6% QoQ to Rs. 1,796cr. Provisions more than halved sequentially to Rs 735cr. Consequently, profit after tax (PAT) more than tripled QoQ to Rs 808cr.

Healthy improvement in asset quality

The bank’s asset quality improved, with GNPA declining by 23.9% QoQ to Rs. 5,299cr in Q4FY23 (down 16.9% YoY). GNPA/NNPA ratios stood at 4.90%/1.20% (vs. 7.20%/1.90% in Q3FY23). Credit cost declined 350bps QoQ to 2.9%. Advances grew 11.5% YoY to Rs. 104,757cr, while deposits rose 12.2% YoY to Rs 108,069cr. CASA ratio expanded 290bps QoQ to 39.3%. PCR stood at 76.8%. Capital adequacy ratio was 19.8% and the Tier-I ratio was 18.7%, well above the regulatory requirements.

Key concall highlights

* The management expects advances to grow by 20% YoY in FY24, driven by the retail segment.

* Housing finance is expected to grow by 22–25% in FY24, while microfinance institutions should grow by 17-18%.

* Customer count rose to 3cr (14 lakh customers were added in Q4FY23)

Outlook and valuation

We expect robust growth in advances and deposits, driven by the retail segment. As per management guidance, NIM should be at 7-7.5% and credit cost should reduce to about 2% in FY24. Improving asset quality, strong collection efficiency, adequate capitalisation, and lower provisioning augur well for the bank’s performance. The stock is currently trading at attractive valuations. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs 305 based on 1.7x FY25E BVPS.

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