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Collection efficiency improves QoQ; business momentum robust

MFI CE (excluding NPA and arrears) at pre-COVID levels

BANDHAN released its quarterly business update highlighting trends for 4QFY22. Below are the key highlights:

* Gross advances (on/off the book and TLTRO investments) grew 15% QoQ and 16% YoY to INR1,014b, supported by a likely improvement in disbursements.

* The deposit base for the bank stood at INR963b, implying a sequential growth of 14% (+24% YoY), led by a 68% QoQ growth in bulk deposits. Growth in CASA deposits moderated to 4% QoQ (+18% YoY). The CASA ratio declined to 41.6% v/s 45.6% in 3QFY22. Trends in Retail deposits were similar to CASA at 4% QoQ (+21% YoY). The proportion of retail deposits fell to 77% (v/s 85% in 3QFY22).

* On the asset quality front, collection efficiency (including NPA, but excluding arrears) improved to 95% in the MFI portfolio in Mar’22 (v/s 91% in Dec’21). Collection efficiency in the non-MFI portfolio was stable at 98%. Overall collection trends in the total portfolio stood at 96% v/s 93% in Sep’21.

* Collection efficiency in MFI (excluding NPA and arrears) is back to pre-COVID levels of 99%. This should further support a recovery in earnings. The GNPA/NNPA ratio stood at 10.81%/3.01% in 3QFY22, with a PCR of 74%. Total restructured book stands at INR66b (7.5% of total AUM), while the SMA overdue in the MFI portfolio moderated sharply to 11% from 21% in 2QFY22.

* Valuation and view: BANDHAN reported a robust pickup in business growth in the traditionally busy fourth quarter. Improving trends in collection efficiency should continue to moderate credit cost and support earnings. However, movement in the SMA book and performance of the restructured book remains a key monitorable. We expect the bank to deliver ~25% RoE by FY24. We maintain our Neutral rating with a TP of INR320/share (2.4x Sep’23E ABV).

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