Repayment rates for all our loan portfolios very healthy: Chandra Shekhar Ghosh, Bandhan Bank

Update on the Indian Equity Market:

On Friday, NIFTY closed lower at 12,352. Among sectoral indices NIFTY Pharma (+1.7%), NIFTY Auto (+0.4%), NIFTY Media (+0.4%) closed higher. NIFTY Bank (-0.8%) and NIFTY Pvt Bank (-0.8%) were the losers. The biggest gainers were Bharti Airtel (+5.5%), Dr. Reddy (+3.0%) and Reliance (+2.8%) whereas Infratel (-11.1%), IndusInd Bank (-2.6%), and GAIL (-2.1%) ended with losses.

Excerpts from an interview of Mr Chandra Shekhar Ghosh (MD & CEO), Bandhan Bank with Economic times dated 15-01-2019:

• There are two factors for profit growth; one is that they have controlled the non-performing assets. The repayment rates for all their loan portfolios have been very healthy which contributes directly to the interest income.
• The second factor is their reach in rural areas, which at 70% while other private banks which have average deployments of 27%. Most of their business is in areas where costs are minimal, which is an advantage for them.
• In his visits to most of their rural centres, he did not see any impact of the slowdown. There are talks at the top level, but at ground level, it is totally different.
• They were a bit conservative in growing their books in the first three quarters. According to him, the next quarter the growth will normalize because the last quarters are generally strong.
• They have taken a small portion of the reserves (₹200 crore) for additional provisioning due to political uncertainty as there have been talks of political unrest.
• Normal repayment rates are above 98% on microfinance loans while in Assam it is over 99%. Three weeks ago, the repayment rates dipped to 78% in Assam because people couldn’t reach banks due to roadblocks and curfews. Within two weeks, it came back to above 93%.
• About 16% of their microfinance loan book is in Assam. In some corners, there has been some political turmoil. They have made the provisions.
• Penetration of housing loans is still low. They see opportunities in this segment.
• MSME is a good market. However, there needs to be proper documentation by these businesses for banks to gauge repayment abilities and offer credit. Once awareness of these important aspects of documentation is spread, it’ll turn into a good opportunity.

Consensus Estimate (Source: market screener and Investing.com website)

• The closing price of Bandhan Bank as on 17-January-2020 was ₹ 481/-. It traded at 4.9x / 3.9x / 3.2x the consensus Book Value for FY20E / 21E / 22E of ₹ 97.5/ 123.0/ 151.0 respectively.
• Consensus target price of ₹ 641/- implies a Price to Book multiple of 4.2x on FY22E Book Value of ₹ 151/-