After painful three quarters, investors of Bandhan Bank Ltd were due some cheer and that seems to have come their way now.
The microfinance company-turned-bank managed to show considerable improvement in its key growth metrics for the March quarter. To that extent, FY22 would be far better than the previous year.
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In its early update on the fourth quarter of FY22 to exchanges on April 5, Bandhan Bank said loan growth in the January-March period improved to 16 percent year-on-year. This is a vast improvement from the 9.6 percent growth for Q3FY22.
Disbursements have improved as most of the restrictions put in place to curb the spread of coronavirus have now been lifted across the country.
To be sure, the source of the loan growth would be a key thing to watch for. Micro-finance still constitutes more than half of Bandhan Bank’s total loan book and the lender wants to bring this down to 30 percent in its efforts to diversify.
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Broad-based growth
Analysts believe the growth is broad-based, with both microfinance and non-microfinance contributing. In the December quarter, the microfinance book had shown a growth of 22 percent, housing loans grew roughly 7 percent and loans to small businesses grew by 25 percent.
Bandhan Bank’s need to diversify is understandable as micro-loans have been the biggest source of delinquencies during the pandemic. The lender saw more than 10 percent of its loan book turn bad for the December quarter. It also had to restructure a chunk of loans to help borrowers tide over tough times.
But with economic activity picking up, the prospects for asset quality look promising. Collection efficiencies are back to pre-Covid levels, according to the bank.
“Improving trends in collection efficiency should continue to moderate credit cost and support earnings,” wrote analysts at Motilal Oswal Financial Services Ltd in a note. The brokerage firm expects the bank to deliver a 25 percent growth in return on equity by FY24.
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A good buy
This brings us to the latest purchase of the IDFC Asset Management Company (AMC) Ltd by the bank’s parent Bandhan Financial Holdings (BFH) Ltd. The addition of an AMC brings the group closer to its goal of having financial products such as mutual funds and insurance in its kitty.
Given that the group has enough liquidity, the purchase is value accretive. For the bank, though, this is an opportunity to boost its fee income through cross-selling of mutual fund products, point out analysts at Jefferies India Pvt Ltd.
The share of non-interest income in the bank’s overall income is less than 25 percent. IDFC AMC’s entry into the group could boost this share. BFH is a part of a consortium and the purchase of the fund house would take more than six months subject to regulatory approvals.
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Bandhan Bank’s improving performance has given investors reason enough to drive the stock up. The stock has outperformed the broad market in the past month with a stellar 23 percent gain.
At 1.01 pm, the stock was trading at Rs 320.65, up Rs 5.65, or 1.8 percent, on the NSE.
