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Collection efficiency fell QoQ; business growth remains weak

BANDHAN released its quarterly business update highlighting key trends for 1QFY23. Below are the key highlights:

* Gross advances (on and off the book and TLTRO investments) grew 20% YoY, but fell 2.7% QoQ to INR966b, led by a likely weak trend in disbursements.

* The deposit base for the bank stood at INR931b, implying a sequential decline of 3.4% (+20% YoY), led by a 12%/6% QoQ fall in bulk/term deposits. Growth in CASA deposits remains flat QoQ (up 21.1% YoY). The CASA ratio improved to 43.2% v/s 41.6% in 4QFY22. Trends in Retail deposits have also remained modest (down 1% QoQ and 15% YoY). The proportion of Retail deposits rose to 79% (v/s 77% in 4QFY22). LCR ratio remains healthy at 133%.

* On the asset quality front, collection efficiency (excluding NPA and including restructuring) declined to 94% of the MFI portfolio in Jun’22 (v/s 99% in Mar’22). Collection efficiency in the non-MFI portfolio was stable at 99%. Overall collection trends in the total portfolio fell to 96% v/s 99% in Mar’22.

* Furthermore, collection efficiency in MFI (excluding NPA and restructuring) for the Assam/West Bengal portfolio fell to 93%/98% (v/s 98%/99% in Mar’22).

* Valuation and view: BANDHAN reported a weak 1QFY23, with a sequential decline in business growth. Collection efficiency weakened, which will impact asset quality and credit cost, thereby impacting earnings. Movement in the SMA book and performance of the restructured book will be a key monitorable. We maintain our Neutral rating, with a TP of INR315 per share (2x FY24E ABV)

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