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Growth momentum to gain traction

* Bandhan Bank (BANDHAN) remains focused on product diversification, while expecting a decrease in the proportion of MFI offerings as other segments experience faster growth. The bank is currently experiencing a gradual recovery in its growth trajectory. This, coupled with regulatory changes and a robust customer base, will drive the loan growth (~19% CAGR over FY23-25).

* The bank continues to exhibit strong momentum in deposits, with a notable increase in TD while decline in CASA deposits led to moderation in the CASA Ratio in 1QFY24. Bank has been focusing on increasing its retail deposits.

* BANDHAN has been dealing with higher stress in the EEB book. However in the last few quarters we have witnessed a moderation in the SMA book and we expect asset quality to improve over FY24/FY25.

* We estimate margins to remain range bound, with higher growth in advances supporting the total income. Further, we expect a decline in credit costs, aided by healthy recoveries, particularly in 2QFY24 (including CGFMU).

* We thus estimate BANDHAN to report an RoA/RoE of 2.3%/20% in FY25. We reiterate our Neutral stance on the stock with a TP of INR240 (based on 1.6x FY25E BV).

Focus remains on product diversification; mix of MFI loans to decline

The bank continues to focus on product diversification, while expecting a decrease in the proportion of MFI offerings as other segments experience faster growth. The MFI mix is likely to moderate to 26% by FY25, while Housing Finance/Commercial Banking/Retail assets will constitute 30%/38%/6%. Further, the bank guided to reduce the mix of West Bengal and Assam in MFI and SBAL loans to 40% by FY25 from its current 45%. Loan growth is expected to be driven by a combination of regulatory changes and a robust customer base. Overall, we estimate loans to register a CAGR of ~19% over FY23-25.

Garnering retail deposits to be a key focus

The bank continues to focus on building a granular franchise with CASA/Retail deposit mix likely to increase to 37%/75% by FY25 from its current 36%/71%. Another important segment for the bank is the acceptance of the government business (Agency Bank of RBI) where the bank has created a separate vertical with expertise across the market and empaneled government agencies across the country. Bandhan aims to enhance its wealth proposition and is looking to expand its geographical presence to boost deposits. By FY25, the mix of branches in Eastern India is likely to moderate to 47%. Meanwhile, ~30% of the proposed new branches will be established in five states with substantial deposit potential. The bank’s key focus states include Uttar Pradesh, Bihar, Telangana, MP, and Gujarat. Overall, we estimate deposits to register a CAGR of ~20% over FY23-25

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