ICRA downgrades rating outlook on Bandhan Bank to 'negative'

Stress in small business loans triggers action

Rating agency ICRA has downgraded the rating outlook on Bandhan Bank from ‘stable’ to ‘negative’ following the sustained weakness in its emerging entrepreneur business (EEB) portfolio despite the improvement in collections in Q2 FY2022.

It reaffirmed ratings assigned to debentures and term loans from banks.

The gross stress pool in the EEB segment - increased to Rs 19,457 crore (36 per cent of the EEB portfolio) as on September 30, 2021 compared to Rs 15,657 crore, (29.4%) as on June 30, 2021. The stress loan pool comprises of gross Non-performing assets + gross restructured assets + Special mention accounts in category 1 & 2.

In a late night statement ICRA said the private bank continues to collect (dues) in the above mentioned stressed portfolio. But, the uncertainty over the quantum and timing of the final recovery has prompted the bank to accelerate the provision for the entire pool of stress in the EEB segment.

The bank held 49 per cent provision on its gross stress pool of Rs 19,457 crore as on September 30, 2021. This provision is based on expected collections from the portfolio till March 2022 and estimated recoveries under various government schemes, it said.

Bandhan Bank witnessed collections of around Rs 1,000 crore in October 2021 from the stressed assets and targets to collect Rs 6,000 crore by March 2022.

In addition, the bank is targeting a recovery through the Credit Guarantee Fund for Micro Units (CGFMU) scheme of Rs 3,000 crore. This is apart from likely recover from the Assam Microfinance Incentive and Relief Scheme (AMIRS), but the value is not ascertained yet.

With accelerated provisions during Q2 FY22, the bank reported net losses during the quarter, while the Tier I capital ratio declined to 19.48 per cent in September 2021 from 23.85 per cent as on June 2021.

ICRA said the high level of provision on the stressed pool of assets (including standard accounts) provides some comfort. However, the ability of the bank to reduce its stressed pool of assets will continue to drive future credit provisions, profitability and capital.