Is it the Right Time to Invest for Indian Investors to Bet on this Youngest Bank in the Country?

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Bandhan Microfinance was incorporated in West Bengal in 2001 by Chandra Shekhar Ghosh.


It eventually became the largest micro-finance lender in the east & north-eastern India. It was one of only two NBFCs to receive a universal banking license from RBI in 2015 (the other being IDFC).

Bandhan Bank last year announced a solid September quarter income with net profit nearly multiplying from a year prior and strong loan development. Remember that the revealed numbers for the quarter consider the merger with Gruh Finance and are not legitimately similar to the comparing figures of the earlier year.

Bandhan was one of the two banks, alongside IDFC, to be allowed a financial permit by the Reserve Bank of India as of late as 2014. Bandhan turned into the primary microfinance organization to change over itself into an undeniable widespread bank, particularly from the “small finance banks” (SFBs), and it initiated procedure in August 2015.

Micro-finance loans are the dominant part of Bandhan Bank’s loan book at over 85%. Currently, the bank has over 3,000 Doorstep Service Centres, over 950 branches, and 480 ATMs. It serves 11.5 m microloan customers and around 3 mother customers.

In a short time of five years after receiving the banking license, it has successfully transitioned from a micro-finance lender to a universal bank.

It’s also commendable that in the first three years, Bandhan Bank replaced all its high-cost borrowings with low-cost deposits.

Today, total retail liabilities and current account and savings account (CASA) is about 80% of total deposits. This is critical to keep costs low and to create a strong network moat.

In under four years, Bandhan has become the best and youngest successful bank with powerful development in its asset report, the most noteworthy margin among its financial friends, a considerable deposit franchise and moderately lower bad loans.

Nonetheless, Bandhan’s single product lending book has been the explanation behind some worry. Despite the endeavors to scale up its non–small scale resource book, Bandhan is overwhelmingly a miniaturized scale fund bank, as smaller-scale money credits made up more than 85 percent of its book till a quarterback. However, one of the key advantages of the as of late finished up a merger with Gruh Finance is that its credit book is presently starting to look progressively like that of an all-inclusive bank, with various items.

Another issue is Bandhan’s local (east and north-east) focus. Notwithstanding item broadening, the merger will lessen the geological focus, as Gruh, for the most part, works in western India contrasted with Bandhan’s fortification in the eastern piece of the nation. Additionally, however, West Bengal is the least utilized state, Bandhan is endeavoring to develop its borrower based outside the state, to all the more likely oversee dangers.

A quick word about its hiring policy… When we contacted and interacted with the management, they gave us a brief understanding of their direct selling agents in rural areas.

These candidates should be a second-class graduate who should have been looking for a job for at least six months. This policy has ensured that the candidates are very receptive to good training. They put in a lot of effort and thus the chance of attrition is low.

I expect the merger with Gruh Finance to be benign over the long term. It will enable Bandhan Bank to reduce risk due to geographical concentration, diversify its product portfolio, and still target the underpenetrated market.

The biggest advantage of the merger will be using the expertise of Gruh Finance to cross-sell products in semi-urban and rural areas.

Gruh has been a costly procurement and was book esteem dilutive for Bandhan investors, yet it reinforces the bank’s plan of action. The arrival proportions of the consolidated element keep on being great as reflected in the September 2019 quarter income.

All things considered, Bandhan’s greatest concern remains the hazard related to the small scale loaning business. Smaller-scale money is a generally more hazardous resource fragment with inalienably powerless borrowers, defenseless to socio-policy driven issues. With the easing back economy, the drawbacks of dangers have expanded altogether. For example, leading rating agency ICRA’s examination of the arrangement of Micro Finance Institutions (MFIs) uncovers that ticket sizes and credit residencies are rising, demonstrating that the danger of overleveraging has expanded.

Are the Assam Troubles Priced In for Bandhan Bank?

Bandhan Bank has about 16.4% of its microfinance loan book in the state of Assam. The stock has tumbled over the past few sessions due to women protesters in Assam seeking a ban on microfinance companies. The protestors have alleged these companies charge exorbitant rates of interest on loans. They demanded investigations into alleged malpractices and the extra interest be returned to borrowers.

But the protest hasn’t materially impacted the bank’s collection rate in the state. According to the management, the rate of microloan collection in the state of Assam, has, in fact, improved to 93.5% from 92.9% in recent weeks. The bank’s performance in the microfinance segment, as per collection efficiency across the country, also improved to 99%. Excluding Assam, it stands at 99.1%. Overall, the bank is financially quite stable – capital adequacy is 29%, net interest margins is 7.9%, return on equity is 20%, and net NPAs is 0.8% (as of December 2019),

All things considered, Bandhan’s somewhat extraordinary business banking model that has been producing exceptional yield proportions and the development openings from its demonstrated reputation in serving underbanked and underpenetrated markets makes a safe and balanced bet for long term investors.
The margin of safety in the stock due to the temporary problems in Assam, therefore, offers a good entry point to Invest.

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