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Despite slower growth, Bandhan Bank reported in-line PAT at Rs7.2bn, mainly owing to lower provisions. Slippages were slightly elevated by 57bps QoQ to 7.3%, due to flood-related impact and higher stress-flow in Assam. CGFMU recovery in 2Q was delayed on account of audit and is expected to flow through in 2HFY24. Separately, the long elusive recovery from the Assam loan-relief scheme has begun, but the quantum remains limited. Bank sees credit cost at ~2% for FY24. Recently, the bank hired an additional ED (awaits RBI approval). Further, considering that the tenure of the current CFO is ending on 19-Oct-23, the bank has appointed Abhijit Ghosh, Head - Finance & Accounts, as the interim CFO w.e.f. 20-Oct-23. We cut FY24-26E earnings by 2%-7%, building-in the slower growth and higher opex. However, we expect RoA to improve to 2-2.5% and RoE progressing to 16-20% over FY24-26E, from a low of 1.5% and 12%, respectively, in FY23. We retain BUY, with revised TP of Rs290/sh, rolling forward on 1.7x Sep-25E ABV.

Growth remains sub-par, but Management guides for acceleration in 2H

Bandhan Bank posted AUM growth of 13% YoY/4% QoQ, which remains sub-par vs peers’. This is mainly due to continued weakness in MFI and the housing segment. Deposit growth too was sluggish at 13% YoY/3% QoQ, but CASA ratio improved QoQ to 38.5%. Bank carries a healthy liquidity buffer, with LCR at 163%. NIM has been stable for the past two quarters, but declined by 10bps to 7.2% in Q2FY24 (7.3% for Sep-23, reflective of the festive demand) due to rising CoF. Bank expects to maintain NIM at 7- 7.5% levels in FY24, owing to healthy yields and contained CoF.

Asset quality slips yet again

After a spike of 190bps QoQ in the GNPA ratio to 6.8% in 1Q due to recognition of the ECLGS stress pool of up to Rs5.8bn, as mandated by the recent RBI circular, the bank has seen further increase in the ratio by 57bps QoQ to 7.3% due to higher slippages from the Assam portfolio. CGFMU recovery has been delayed (vs expectations of recovery in 2Q) due to the audit, but could flow-through in 2H. Separately, the long-awaited recovery from the Assam loan relief scheme has started, but the quantum is limited and the bank is not pinning much hope on the recovery.

Outlook and Valuations

We cut FY24-26E earnings by 2%-7%, factoring-in the slower growth and higher opex. However, we expect improvement in RoA to 2-2.5% and in RoE to 16-20% over FY24- 26E, from a low of 1.5% and 12%, respectively, in FY23. We retain our BUY on Bandhan Bank, with revised TP of Rs290/share, rolling forward on 1.7x Sep-25E ABV. Further, considering that the tenure of the current CFO ends on 19-Oct-2023, the bank has appointed Abhijit Ghosh, Head – Finance & Accounts, as the interim CFO w.e.f. 20-Oct2023. Key risks: Micro-economic risk leading to delay in growth/asset-quality recovery; Senior Management attrition.  

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