Bandhan Bank shaping up well, Q4 profit up 68% at Rs 651 crore

Impressive net profit expansion helped by strong balance sheet growth is the key positive in Q4 results

Reacting to a strong set of March quarter (Q4) results, the Bandhan Bank stock rose over 4 per cent on Wednesday. The numbers not only beat expectations on most fronts, but were also the best in any quarter of FY19.

Net profit at Rs 651 crore expanded 68 per cent year-on-year (YoY), helped by a 45.6 per cent increase in net interest income (NII) at Rs 1,258 crore. NII is the difference in interest income and interest expended. 

For investors, the good news is that with full provisioning already undertaken for exposure to Infrastructure Leasing & Financial Services (IL&FS) loans worth Rs 345 crore in Q3, this quarter wasn’t affected on this front. 

An outstanding of Rs 25 crore towards IL&FS remains, though the account remains standard. Provisioning cost at Rs 150 crore, despite a 40 per cent YoY increase, did not materially impact the bank’s credit costs, pegged at 39 bps, close to its historic levels. 

Loan growth of 38.5 per cent, despite last year’s high base (76 per cent growth), was impressive, too. “Given the short-term nature of Bandhan’s loan book, it is important for the bank to maintain loan growth at around 33-35 per cent to sustain the earnings momentum,” says Kajal Gandhi of ICICI Securities. 

The rising share of non-microfinance (MFI) loans at 13.8 per cent, versus 13 per cent in Q3, indicates the bank’s ability to sustain growth outside its comfort zone of MFI lending. With incremental gains likely from the Gruh Finance merger, this is set to change for good. 

Yet, with MFI accounting for much of the growth, Bandhan’s profitability measured as net interest margin (NIM) too reflects that of MFIs — upwards of 9 per cent. Q4’s NIM at 10.7 per cent, highest since listing in March 2018, improved over 100 bps YoY. 

The other positive is the sharp improvement in the share of low-cost current account–savings account (CASA) deposits to 40.7 per cent, from 34 per cent last year. While the improvement is noteworthy, its stickiness and the bank’s ability to keep costs under check are key. 

Sequentially, CASA reduced marginally from 41.4 per cent in the third quarter. In all, keeping a check on costs also lent support to Bandhan’s Q4 show. Cost-to-income ratio at 30 per cent, the lowest since listing, despite adding 3.5 million customers, augurs well. 

While fundamentals remain strong, the stock at 5.5 times its 2019-20 book is steep in terms of valuations.