Bandhan Bank Ltd

NSE:BANDHANBNK

Earnings Call Analysis

Strong Financial Performance Driven by Growth and Efficiency

In the first quarter of FY '25, Bandhan Bank reported a robust financial performance. Gross advances increased by 22% year-on-year to INR 126,000 crores, signaling a reversal of the cyclical decline seen in previous years. Deposits grew by 23% year-on-year to INR 133,000 crores. The bank's profit after tax soared by 47.4% to INR 1,063 crores, driven by a 20.7% increase in net interest income and a 23% rise in net total income. Despite macroeconomic challenges, asset quality improved, with gross NPA at 4.2% and net NPA stable at 1.1%. The bank maintained a healthy return on assets of 2.5% and return on equity of 18.8%.

Growth Momentum in Advances

In the first quarter of FY '25, Bandhan Bank reported robust growth in gross advances, reaching INR 126,000 crores, reflecting a 22% year-on-year increase and a sequential growth of 1%. This marks a reversal of previous trends, where typically the first quarter saw declines compared to the fourth quarter. The retail book, excluding housing, surged impressively by 84% year-on-year, while commercial banking and housing grew by 30% and 13% respectively. Notably, the bank's focus on secured lending is evident, enhancing its overall risk profile.

Improvement in Asset Quality

The bank has made significant strides in asset quality, with gross Non-Performing Assets (NPA) rising to 4.2% compared to 3.8% in the previous quarter, yet net NPA remained stable at 1.1%. Slippages decreased to INR 891 crores from INR 1,017 crores in Q4 FY '24, illustrating the bank's effective recovery efforts. The improved collection efficiency and recovery rates, particularly in the Emerging Entrepreneurial Business (EEB) segment, indicate a healthier credit environment.

Financial Performance Highlights

For Q1 FY '25, net interest income stood at INR 3,005 crores, marking a 20.7% increase year-on-year, with a net interest margin (NIM) of 7.6%, up from 7.3% a year ago. Net total income grew by 23%, reaching INR 3,533 crores. This growth was supported by a remarkable 37% rise in other income. Operating expenses were reduced by 7.5% sequentially, contributing to an operating profit of INR 1,941 crores, which is a 24% increase compared to the previous year.

Profitability and Return Ratios

The bank reported a profit after tax of INR 1,063 crores, representing a significant year-on-year growth of 47%. Return on assets (ROA) was recorded at 2.5%, and return on equity (ROE) stood at 18.8% for the quarter, showcasing strong profitability relative to its asset base and shareholder equity.

Strategic Focus and Future Outlook

Looking ahead, Bandhan Bank aims to further diversify its product offerings while enhancing its geographic outreach. The bank anticipates continued growth in both advances and deposits, with guidance suggesting that advances could grow by 18% to 20% and deposits at a higher rate. The focus on the secured asset portfolio appears to align with a cautious approach to risk while ensuring service diversity for underserved customer segments.

Guided Credit Costs and Capital Adequacy

Credit costs moderated to 1.6% for the quarter, with a full-year expectation set between 1.8% and 2%. Concurrently, the increase in risk weights for the EEB loan portfolio led to a revised capital adequacy ratio (CAR) of 15%, expected to include profits into a potential 15.7%, indicating a well-capitalized bank ready to support future growth without immediate capital raises being planned.

Macro Economic Context

As the economic landscape remains supportive with strong macroeconomic indicators, Bandhan Bank aims to leverage government programs to enhance its impact. The RBI projects a GDP growth rate of 7.2% for FY '25. Such conditions could augur well for the banking sector's sustained performance, providing the necessary backdrop for Bandhan Bank's continued expansion.

Challenges and Management Remarks

Despite the positive quarterly performance, management acknowledged challenges such as weather disruptions affecting collections and a relatively competitive deposit market contributing to slightly increased funding costs. However, they remain optimistic, focusing on enhancing operational efficiencies and resilience in credit quality management.

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Q1 FY '25 Earnings Call for Bandhan Bank. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Vikash Mundhra, Head Investor Relations, Bandhan Bank. Thank you, and over to you, sir.

[Vikash Mundhra, executive]

Thank you, Siddhant. Good evening, everyone, and a warm welcome to all the participants. It's our pleasure to welcome you all to discuss Bandhan Bank's business and financial performance for the quarter ending June '24. We appreciate your time and participation today. We will take this opportunity to provide insight into our operational activities, including any significant achievement of challenges. We'll also touch on market conditions, strategic initiatives and any changes in our business environment.

To discuss all this in detail, we have with us our MD and CEO, Mr. Ratan Kumar Kesh; Executive Director and Chief Business Officer, Mr. Rajinder Kumar Babbar; Chief Financial Officer, Mr. Rajeev Mantri; myself, Vikash Mundhra, Head of Investor Relations, along with other senior management team of the bank. We'll be happy to provide you with any clarity, if required, from the current quarter's numbers and the way ahead.

Now I would like to request our MD and CEO, Mr. Ratan Kumar Kesh, to brief you all on bank's quarter performance. Over to you, sir.

[Ratan Kesh, executive]

Thank you, Vikash. [Foreign Language]. Good evening, a warm welcome to all of you. As you all are aware, as announced by Mr. Chandra Shekhar Ghosh on April 5, 2024, he has retired as MD and CEO of the bank on completion of his tenure on 9th July 2024. Mr. Ghosh played a very vital role in taking the bank on such a phenomenal growth path. On behalf of the Board and the management, I would like to place on record the outstanding contribution of Mr. Ghosh, Founder and MD and CEO of the bank since inception till 9th July 2024. His contribution to the banking sector, particularly to the MFI sector is unparalleled. We wish Mr. Ghosh all the very best for all his future endeavors.

Pursuant to the approval of the Reserve Bank of India, the Board had approved my appointment as interim MD and CEO, with effect from July 10, 2024, for a period of 3 months or til the new MD and CEO takes charge, whichever is earlier. As informed earlier, the Board has appointed a search firm to assist in identifying potential candidates to take on the role of MD and CEO. Due process is being followed by the Board in this regard, and the same is on track. We will keep you updated on any major developments in due course.

Coming back to the quarter, let me begin by talking about the macroeconomic scenario. Despite various global uncertainties, India's macro parameters remain strong. Real GDP witnessed a growth of 8.2% in FY '24. RBI expects real GDP growth of 7.2% and CPI inflation of around 4.5% during FY '25. While the RBI stays cautious and is in no hurry to cut the repo rate, banking system liquidity has eased a bit and turned into modest surplus recently. The Union budget announced earlier this week was a fine balance between fiscal prudence and support for sustainable and inclusive growth.

In line with the long-term goal of Viksit Bharat, the budget revolved around themes of employment, skilling, rural development, MSME, middle class and women empowerment. The budget strongly reiterated support for agriculture sector and rural India in general, continued focus on affordable housing and removing the bottlenecks of the MSME sector. These initiatives will go a long way to drive India's economic growth and sustainable development story over the next several years.

Some of the announcements will give our bank an opportunity to create greater impact by participating in the government's drive and thereby reap huge business benefits. Indian banking sector continued to witness decent credit growth and further improvement in asset quality. Overall, the favorable macro backdrop should continue to help the momentum in the Indian BFSI sector in the coming years.

Let me now move to the quarterly performance of the bank. Typically, in quarter 1, the -- Bandhan Bank has always remained a soft quarter in previous years. However, this quarter 1, we have seen all-round improvement across the major parameters. We have witnessed robust financial results driven by pick-up in the business momentum, stable margins, good control over operating expenses and improving asset quality performance.

In terms of balance sheet parameters, the bank has witnessed a strong pick-up in both advances and deposits, in line with our guidance. Over the last 3 years, we have seen sequential decline in advances in quarter 1 compared to quarter 4 of the previous financial year. However, in this quarter, we have seen sequentially stable advances at INR 161,000 crores with a growth of -- Y-o-Y growth of around 22%.

On the deposit front, the deposit stands at INR 133,000 crores with Y-o-Y growth of about 23%, which remained higher than the advances growth with sequential stable share of retail deposits at 69%. This is in line with our stated strategy. Deposit market remained competitive, resulting in slightly higher cost of funds despite which we were able to protect our margin during the quarter, NIM stands at 7.6% in quarter 1 FY '25.

Cost metrics improved on a sequential basis, and we are committed to invest in people, products and technology over the next few quarters. Additionally, our focus on credit quality and the guardrails adopted over the last couple of years are further evolved. Specifically, the steps taken since April 2023 are showing meaningful improvement in our portfolio quality. This is reflected in control over fresh slippages at INR 891 crores in quarter 1 FY '25 compared to INR 1,017 crores in quarter 4 FY '24.

Our continued focus on recoveries led to a steady performance in asset quality. Gross NPA is at 4.2% and net NPA is at 1.1% versus 3.8% and 1.1%, respectively, in quarter 4 FY '24. In quarter 1 FY '25, the bank reported a profit after tax of INR 1,063 crores, up 47.4% Y-o-Y with an ROA and ROE of 2.5% and 18.8% on annualized basis. I'm happy to say that the bank has a very strong and committed team with shared values, which will work in collaborated to meet the expectation of all the stakeholders.

I would like to take an opportunity to update you on the CGFMU audit. When we spoke in the last quarter, we told you that the audit was in progress, and we were expecting a closure of the audit soon. The audit has further progressed very well, and the bank has provided all the support to the auditors in the process. The audit process is nearing a closure. The management is confident of having a positive closure soon.

One important and last point I would like to touch upon before handing over the call to my colleague and CBO, Rajinder Babbar, is the increase in risk weights in the EEB loan portfolio. As you are all aware, in November 2023, Reserve Bank of India had mandated higher risk weights for consumer credit from 100% to 125% with certain specific exemptions. The bank immediately complied with the same for all our consumer credit portfolio. The EEB portfolio of our bank was treated as regulatory retail for risk weight computation at 75% since the beginning of the bank as per [ external ] guidelines.

The circular clearly mentioned that microfinance loans were exempted for NBFCs from the increase in risk weights. However, there was no such explicit mention of such exemption available for scheduled commercial banks. Hence, the bank held various levels of discussions and sought clarifications. Thereafter, in consultation and approval from the Board, the management has taken a conservative approach to increase and apportion a higher risk weightage of 125% to our EEB portfolio from earlier 75%. This increase in risk weightage of our EEB portfolio has an impact of about 362 bps on our overall capital adequacy ratio. Consequently, our CRAR stands at 15% and including profit of quarter 1 FY '25, it is at 15.7%. We are well capitalized to support our future growth plans.

Let me now hand it -- over the call to my colleague, Rajinder Babbar, to discuss on some of the very important business updates.

[Rajinder Babbar, executive]

Thank you, Ratan, and a warm welcome to all of you. End quarter 1 performance clearly reflect that our growth momentum is robust and improving. It has been 4 months since I joined Bandhan Bank. I visited many branches, interacted with the colleagues across the country, and I feel more excited to share that I have found them focused, energetic, self-motivated and eager to deliver. Our focus is clearly a risk-calibrated customer-centric, digital and analytical approach.

So we will continue to emphasize on the four key areas: The first and the foremost is risk-focused culture. The bank is devoted to build a culture of compliance where quality and customer service supersede everything else. The bank is putting forward a robust risk framework to ensure that we have the best-in-the-industry practices.

The second focus is the geographical diversification. We have a strong presence in 35 out of 36 states and the Union territory of the country. Over the last 2 years, the bank has also added 500 new branches. So with our extensive network base of 64-plus banking outlets. We are serving the financial needs of more than 3.45 crore customers. We are also diversifying our portfolio geographically to touch and change more lives across the country.

The third is clearly our customer-centric approach. The bank is committed to offer an array of the financial products and the services specifically tailored to fulfill the various needs and aspiration of all customer segments. Just to mention a few, we have recently launched products such as LC, forex, bank guarantee, bill invoicing and the remittance in our transaction banking space. In addition to adding more new products in our offering, we have also recently launched the facility to collect direct taxes online for our customer as well as for non-customers. We have also launched Bharat QR codes for our current account and the saving account customer. We are balancing a right mix of the secured and the unsecured portfolio as per our long-term strategy and enhancing the product suite.

And the last but not the least, will be the data, analytical and the digital approach. We are leveraging data and analytical to study the consumer's behavior in order to customize and enhance customer experience. Digital banking penetration has increased and will continue to improve further. Cross sell, branch-less service model, coupled with the analytical will be a key area of growth to enhance the wallet share of the customer.

So overall, finally, we have seen a good growth across asset and the liability, and expect the momentum to continue across business verticals for the rest of the financial year, prioritizing the asset quality. And while we are at it, we also increase our digital penetration to make banking easier and accessible to all.

Now I would like to hand over to my colleague, Rajeev Mantri the CFO of the bank, who will run you through the key financials. Thank you.

[Rajeev Mantri, executive]

Thank you, Rajinder and welcome to all the participants to this earnings call. The Board of Directors of Bandhan Bank Limited approved the bank's financial results for the quarter ended June 30, 2024, at its meeting held earlier today. Let me begin with the business numbers for the quarter, starting with advances. As of June 2024 end, gross advances for the bank stood at INR 126,000 crores, which represents a growth of about 22% year-on-year and around 1% quarter-on-quarter, supported by all-round growth across business verticals.

Just to put this growth in context, if you see our sequential advances growth from Q4 to Q1, over the previous 3 years, we have seen a cyclicality whereby there is a decline between quarter 4 to quarter 1 in the -- in each of the previous 3 years. In the last year, which is Q1 FY '24, there was a decline of 5%. In Q1 FY '23, we've seen a decline of 3% versus the previous quarter. And in Q1 FY 2022, there was a decline of 7% versus the previous quarter. However, this year, instead of a decline, we have seen a 1% sequential growth in advances. So thereby reversing the trend has been seen in the previous years.

During the quarter, the retail book, excluding housing, grew at 84% year-on-year. Within that, there's been a focus on the secured portion of the retail book in terms of growth. Commercial banking grew 30% year-on-year, and housing book, excluding IBPCs, grew at about 13% year-on-year.

During the quarter, the EEB portfolio also increased by 21.6% year-on-year. And on a quarter-on-quarter basis, it was largely flat at about INR 61,910 crores. From a business mix perspective, EEB group lending comprised 32% of the total advances. Small business and agri loans were at about 17%; housing, 24%; commercial banking, 22%; and retail banking -- retail assets at 5% of the total advances.

Going ahead, the key elements of our strategy is to have product diversification and geographic diversification. And as part of product diversification, the focus is on growing the share of secured book such as housing, the secured portion of commercial banking and secured retail products. Growth in EEB book would continue, albeit lower than the growth in the secured assets portfolio.

In terms of geographic split of the advances, the top 5 states, which are West Bengal, Maharashtra, Bihar, Gujarat and Madhya Pradesh, contributed 59% of the gross advances. Within this, West Bengal contributed 24% of the advances in this quarter versus 25% in the previous year same quarter. This represents the focus on geographic diversification as well.

Moving to liabilities. As of June 30, 2024, the total deposits stood at INR 133,000 crores as against INR 10,800 crores in the previous year June quarter. This represents a growth of about 23%, which is higher than the year-on-year growth that we've seen in our advances. Due to our continued focus on granular retail deposits, our total retail deposit, which basically means CASA plus retail term deposits grew by 19% year-on-year, of which the growth in retail term deposit was 25% year-on-year.

Retail deposits, which is CASA plus retail TD to total deposit ratio continues to remain stable at around 69% of the total deposits. CASA deposits were at INR 44,456 crores and that constituted 33.4% of total deposits. The year-on-year growth in CASA was 13.8%. However, sequentially, on a quarter-on-quarter basis, we did see some reduction in the CASA growth. And that was due to some of the balances that came through towards the end of last quarter, which we saw reducing. But on a year-on-year basis, we still saw a very healthy growth in the CASA at 13.8%.

In terms of geographical split, the top 5 states for deposits, namely West Bengal, Maharashtra, Uttar Pradesh, National Capital Territory of Delhi and Odisha contributed about 64% of total deposits. West Bengal contributed 39% of total deposits versus 43% a year back, representing reduced geographic concentration and diversification.

Moving to collections and asset quality. The bank's overall collection efficiency, excluding NPA for the month of June, was marginally lower at 98.5% as compared to 98.8% for the month of March. Within this, for the EEB book, collection efficiency, excluding NPA for the month of June declined to 98.5% versus 99.1% in the month of March. However, on a quarterly basis, the collection efficiency for the quarter 1 FY '25 was largely stable at 98.7%.

On the asset quality front, the banks have seen an improved quarter. Gross slippages during Q1 FY '25 were around INR 891 crores, down from INR 1,017 crores in Q4 FY '24. This represents a steady decline compared to the slippage levels of more than INR 1,300 crores in the -- in each of the first 3 quarters of FY '24 that we had seen. So from the level of INR 1,300-plus crores in the first 3 quarters of last year to INR 1,017 crores in the last quarter to INR 891 crores in the immediate quarter, which is June '24, we have seen a steady decline in the slippages. Within this, the slippages in the EEB book in the current quarter also reduced to INR 543 crores as compared to INR 610 crores in the previous quarter.

Upgradation and recovery efforts continue, and the upgradation recovery amounts increased to INR 371 crores for this quarter compared to INR 284 crores in Q1 FY '24 -- year-on-year growth. In addition to the INR 371 crores, we had also a bad debt recovery of INR 46 crores from the written off portfolio, which gets booked under other income. If you add the two, it is a total of about INR 417 crores of total recovery between these lines.

Moving to the DPD book for the EEB portfolio. We have witnessed improvement in the SMA-2 book from the levels of INR 480 crores, which, in Q4 FY '24, representing 0.8% to INR 436 crores, representing 0.7% in this quarter. We've seen stability in the SMA-1 book at the levels of INR 420 crores, representing 0.7% of the book in this quarter. However, in the SMA-0 book, we have seen an increase of 30 basis points quarter-on-quarter to 0.9% at the levels of INR 580 crores. And this is primarily on account of some slowdown in collections due to the heatwave and floods that we have seen in certain geographical areas within the country.

As a result of all of this, the credit costs for the quarter moderated to 1.6%, representing a healthy reduction that we've seen in the credit cost. However, for FY '25, we continue to expect the credit cost to be in the range of 1.8% to 2%, in line with our previous guidance as we have seen some of the risks in the SMA-0 book that we've talked about.

Gross NPA ratio was at 4.2% in Q1 FY '25 as compared to 3.8% in Q4 FY '24. Net NPA was sequentially stable at 1.1%. The provision coverage ratio or PCR, as of June 30, 2024, was 73.7%, higher than the 71.8% that we had in the last quarter.

With this, I'll move to the last section of the financials update on profitability. Net interest income was at INR 3,005 crores, which grew by 20.7% year-on-year and a growth of 4.8% quarter-on-quarter supported by NIM expansion. On a year-on-year basis, we had 22 basis points in NIM expansion to 7.6%. We had healthy advances growth and also the impact of lower slippages on our net interest income.

Our net interest margin or NIM was 7.6% in Q1 FY '25 as compared to 7.3% in the same quarter previous year. It is important to note that despite some pressure on cost of funds, we have been able to sustain and protect our margins sequentially, both on quarter-on-quarter as well as on year-on-year basis.

Net total income in Q1 FY '25 was INR 3,533 crores, representing an increase of 23% year-on-year. This was the result, as we mentioned, increase in net interest margin, net interest income but also aided and supplemented by year-on-year growth in the other income, which grew year-on-year by 37%, representing a healthy growth in the other income.

Operating expenses reduced by 7.5% versus last quarter. As we had mentioned in the last quarterly update, there have been some onetimers that we had seen in the expenses. But even adjusting for the same on an underlying basis, we have seen costs improving quarter-on-quarter by a reduction of almost about 1%.

On a year-on-year basis, operating expenses grew by 21.2%. This was a result of the investments that we had done in people, in our information technology and the branches. We will continue to invest in people, technology and building key capabilities as also mentioned by Ratan and Rajinder, in terms of driving the strategic growth targets that we have for the bank. As a result of all this, the operating profit in Q1 FY '25 was INR 1,941 crores, registering a growth of 24% year-on-year. And we've also seen an improvement in the credit costs on a year-on-year basis as a result of which, due to the strong operating performance, improvement in credit costs, the bank registered a net profit of INR 1,063 crores in the quarter of June 2024 compared to INR 720 in the quarter of Q1 2025 -- and compared to INR 721 crores in Q1 FY 2024. This represented a 47% year-on-year growth in the profit after tax.

The return ratios have been healthy. Return on assets was at 2.5% and return on equity at 18.8% for this quarter on an annualized basis.

On behalf of the management team, I would like to once again thank you all for participating in this call, and we will now take questions.

[Operator]

[Operator Instructions] The first question is from the line of Aditi [ Nowal ] from RSPN Ventures.

[Unknown Analyst]

Am I audible?

[Ratan Kesh, executive]

Yes. Go ahead, Aditi.

[Unknown Analyst]

Congrats on great set of numbers. Sir, I just have one very small data keeping question. So in your results this time, you have not mentioned the net worth amount. So if you could just let me know what the amount is?

[Ratan Kesh, executive]

Hold on. Net worth.

[Rajeev Mantri, executive]

The total net worth as of 30th June 2024 was INR 21,883 crores.

[Operator]

The next question is from the line of Piran Engineer from CLSA.

[Piran Engineer, analyst]

Congrats on the quarter [Technical Difficulty].

[Ratan Kesh, executive]

Piran. It is not very clear.

[Vikash Mundhra, executive]

Your voice is not very clear.

[Piran Engineer, analyst]

Am I audible now?

[Ratan Kesh, executive]

Slightly better. Please go ahead.

[Piran Engineer, analyst]

Yes, I was just asking [Technical Difficulty].

[Operator]

Sorry, Piran sir, your audio is not clear. [Operator Instructions] The next question is from the line of Prabal from AMBIT Capital.

[Prabal Gandhi, analyst]

Am I audible?

[Operator]

Yes, sir, you are audible.

[Prabal Gandhi, analyst]

Okay. Sir, my first question was on margins. Was there any one-offs in other interest income?

[Rajeev Mantri, executive]

No, there were no one-offs in the other income. This represents the underlying growth that we've seen in the business. Buoyed by increase in processing fee as well as the other elements of other income.

[Prabal Gandhi, analyst]

And no one-offs in other interest income, that sort of goes [indiscernible].

[Rajeev Mantri, executive]

Yes. No, no one-offs.

[Prabal Gandhi, analyst]

And sir, how do you think about -- in terms of CASA ratio has dropped by 400 basis points. How do you think about cost of funds going ahead?

[Rajeev Mantri, executive]

So yes, I think as we had mentioned, whilst the CASA ratio we saw on a quarter-on-quarter basis a decline, on a year-on-year basis, it still represented a good growth. But as we have mentioned, the retail deposits, overall, which is retail term deposits plus CASA, remains stable at about 69%. So that represents overall sort of the focus on deposits.

But on question on the cost of funds, as we have seen, I think, in the market, there is some pressure building on the cost of funds. So we will continue to ensure that whilst the focus on the deposits happen, we will have to be cognizant of the pressures on cost of funds building in the market and accordingly, calibrate our strategy.

[Prabal Gandhi, analyst]

And in context of that, how to think about margins going ahead?

[Ratan Kesh, executive]

So as guided before, we will continue to maintain our NIM in the range of 7% to 7.5% depending on how the overall interest rate looks like.

[Prabal Gandhi, analyst]

Can I squeeze in one more question?

[Unknown Executive]

Yes, please. Go ahead.

[Prabal Gandhi, analyst]

Sir, on this diversification, so how to think about our exposure to the MFI segment because on one side, we are reducing our share of direct leasing, but at the same time, we are also increasing our lending to NBFC MFIs. So last 4, 5 quarters are cumulative for [indiscernible]. So how are you thinking about diversification away from MFI segment?

[Rajeev Mantri, executive]

Yes. So I think as we had mentioned briefly, there is a clear focus in terms of driving product diversification as well as geographic diversification. Within the products, we are looking to improve the share of our secured assets portfolio and that will be the direction where we are trying to increase that, which would mean that whilst the asset growth will happen, both in the micro finance book as well as the secured book, the growth percentage for the secured book will be faster compared to the micro finance. And that will drive the change in the share of the secured assets compared to the total assets. That is the strategic focus.

[Prabal Gandhi, analyst]

And we are okay with giving loans to NBFC MFI because our exposure to MFI segment will continue to stay high even though that could be a secured or secured by [indiscernible].

[Ratan Kesh, executive]

So on a -- as a strategic level, our focus on secured percentage will go up. We'll continue to balance our NIM at 7% and 7.5%. So there is no embargo or a strategic limitation that we will not lend to a particular segment. We'll continue to focus on overall diversification as a subject. That's the area. So we don't have any specific limitation that we will not lend to MFI sector. How much we'll grow into that particular sector will depend on the overall guardrails of how much secured that we want to do, that guidance we have already given. We'll continue to grow our secured book.

I'll request my colleague, Satish, who heads Wholesale Banking, to also chime in with a few points.

[Satish Kumar, executive]

Satish Kumar here. I take care of the Wholesale Banking business. So as MD said, I think the overall guiding factor is to increase the secured book. To that extent, I think we'll maintain a stable outlook on NBFC MFIs. So the growth there would be like a muted kind of thing and not an aggressive growth. So as of now, that is the strategy.

[Operator]

The next question is from the line of Jai Mundhra from ICICI Securities.

[Jai Prakash Mundhra, analyst]

Congratulations on a steady quarter. A couple of questions, sir, in the opening remarks, you mentioned that we have managed to reduce the cyclicality that we usually have in the first quarter in terms of Q-o-Q decline in the AUM. So if you can elaborate, is this a new normal wherein you have been -- managed to curb the seasonality? Or it could be just 1 quarter phenomena wherein you would have opportunity to disburse a little bit higher? Or how does this -- how do you manage to change the seasonality?

[Rajinder Babbar, executive]

Yes. Rajinder Babbar, here. Basically, as we inform to all, we are working on a particular strategy. So as a part of this strategy, our main focus is how we can grow the secured book as compared to the other group by keeping a proper product mix. So as part of that strategy, this is the normal growth and we had taken -- because you will see our book and you see the portfolio, the housing finance, the retail asset basically has grown steadily as compared to the EEB book. Simultaneously, we are keeping a close watch. So it will be a regular growth, not a onetime activity.

[Ratan Kesh, executive]

And just to add to -- I'll just add a little more color to this. If you remember, we communicated in the last year similar quarter that we had adopted certain specific guardrails on credit quality improvement. Some of those, it took a little bit of a time for the overall distribution channel to really understand and get adjusted to this. Given the fact that they now got adjusted and over the last 4 to 5 quarters, we are seeing steady improvement, we would believe that this is a new normal.

And we won't say that we have beaten the cyclicality. It has not grown. Our quarter 3, quarter 4 will still be much better than quarter 1 and 2. But yes, the degrowth as a subject, I think, we should be able to protect.

[Jai Prakash Mundhra, analyst]

Right. Usually, we had a very deep cyclicality in the sense that 5% to 10% or even very high single-digit degrowth would have happened in the micro loans or EEB book, which is very stable this quarter. And in the past, you have said that the underlying business as a seasonality, they draw down during the fourth quarter and then there is a monsoon, there is a rainy season not too much activity and hence, there is a drawdown. But that -- you have managed to address that, right? That is what the message is.

[Ratan Kesh, executive]

Right, yes.

[Jai Prakash Mundhra, analyst]

Secondly, sir, on this CET1 Tier 1 reduction, is that the final decision by the bank? Of course, in the sense that is there any chance that you still are having discussion with the regulator or any final authority here? And in the later quarters, you may have an opportunity to change the risk weight, again, to 75% or this is now done as of now?

[Ratan Kesh, executive]

See, as we mentioned, we looked at the circular and we found certain specific exemptions. And then we looked at saying that there are certain specific assumptions which are not available for the scheduled commercial banks. And therefore, we have discussed, deliberated and interpreted it, took guidance of the Board and the management and gone ahead and done that. How we go ahead and look at some of our product programs and internally look at all of those will be a matter of future. But as of now, this is the finality to our decision, and this is what we have done and moved ahead.

[Jai Prakash Mundhra, analyst]

Right, sir. So you're not disputing -- or you're not, let's say, discussing this any further, right? I mean that is how the message is.

[Ratan Kesh, executive]

That's how the message is.

[Jai Prakash Mundhra, analyst]

Okay. And because your risk rates have changed, have you -- so your risk-adjusted profitability, clearly, profitability on capital employed would have deteriorated notionally. Are you thinking -- and you also seem to be one of the lowest-rate bank in the MFI segment. Are you thinking of changing the rates to adjust for the risk-weighted capital yield? Are you...

[Ratan Kesh, executive]

Not as of now.

[Jai Prakash Mundhra, analyst]

Okay. Sure. And lastly, sir, on SMA-0, 1 plus 2 book, right, and then you had mentioned that credit cost of this quarter may not be an indicator of the full year credit cost and that is -- you are maintaining that guidance. But if I look at SMA-0 plus 1 plus 2, that -- the number in absolute amount was declining for the last several quarters, right? Because we were seeing that trends were improving. However, in this quarter, that INR 12.6 billion number has gone up to INR 14.4 billion. If you look at the bigger context, the lot of states, geographies have had some disruption/tough weather. Do you -- would you believe that at this number of 0 plus 1 plus 2 in absolute amount should start reducing? Or you think that there is still some uncertainty with respect to the macro?

[Ratan Kesh, executive]

See, as you rightly said that our DPD pool, SMA-0, 1, 2 put together, has been coming down consistently over the last 4 quarters. And as we stand today, even on Y-o-Y basis, we are almost 50% of what it used to be one year back. That's a good news. Having said that, quarter 1 has been marred with some heatwaves, of course, the general election has a little bit of an impact in general. But we are optimistic of the fact that our recovery efficiency and the guardrails that we put in place, it should hold good for us going forward.

We have work in hand for sure, and that I think management is fully conscious about and teams are completely focused around it. Our recovery efficiencies are also overall improving. So we'll continue to focus on this area. Industry is seeing some bit of stress in some pockets, and we are extremely careful on some of these areas, and we will continue to focus in a very calibrated manner as also spelled out by my colleague, Rajinder.

[Jai Prakash Mundhra, analyst]

That is right, sir. But what I was trying to understand is if INR 890 crores of slippages as the SMA pool is also reducing, this should ideally stabilize or actually improve? Is that -- the understanding right?

[Ratan Kesh, executive]

Yes. It will improve. We are -- we have work in hand, and we'll continue to focus on improving that.

[Jai Prakash Mundhra, analyst]

Correct. And lastly, sir...

[Rajeev Mantri, executive]

If I can just add further to that, I think the slippage reduction that has happened, our endeavor would be to make sure that it remains stable and improves from here, but we have to be cognizant of some of the increases in the DPD pool and how exactly the flow of that could happen to the slippages. So that will be an inherent risk or underlying risk that we need to continuously manage. And therefore, there will be efforts in that regard, which is a space that we will continue to watch. And that's why the credit cost guidance we have given is a 1.8% to 2%, which is slightly higher than what we've seen in this quarter.

[Jai Prakash Mundhra, analyst]

Right. Right. And sir, your comment on capital now post this -- the adjustment that we have done. Of course, this is much higher than the regulatory floor. But how do you look at the capital position from a 12-months perspective?

[Rajeev Mantri, executive]

Yes. So I think we are at about 15%, excluding profit and about 15.7% if we include the profit for the quarter, which still has sufficient headroom above the regulatory minimum and allows us to continue to grow the asset book. We will, of course, continue to look at how the asset book growth forecast, and projections are there and across which particular segment and capital monitoring will happen on a continuous basis. This is a significant change, and that's why we have called it out. But where we stand right now, as Ratan had mentioned earlier, we remain well capitalized to be able to help foster our asset growth.

[Jai Prakash Mundhra, analyst]

Does this change any of your guidance in terms of growth I mean...

[Operator]

Sorry to interrupt Mr. Jai, I request you to return to the queue for any follow-up questions. The next question is from the line of M.B. Mahesh from Kotak.

[M. B. Mahesh, analyst]

Sir, just this question again on this capital adequacy front, given that you have a nomination from RBI right now at the Board, has there been any conversation on this topic on this issue? Because this instance of increase in risk weight seems to be fairly isolated to the bank, and we don't see a similar conversation across other lenders.

[Ratan Kesh, executive]

The decision was taken before the decision of RBI to put an independent director. Our decision is independent of that, number one. Number two, we wouldn't know exactly what has been the treatment taken by other banks. Maybe you have, we don't have that visibility.

[M. B. Mahesh, analyst]

But what is it that makes it -- that you need to make this under the 125% risk weight?

[Ratan Kesh, executive]

I'll clarify one more time. The November circular was meant for consumer credit, and we implemented that for the consumer credit portfolio. When we looked at and we found that there is a specific exemption of MFI portfolio for NBFCs. It did not mention SCBs. So we looked at saying that as a scheduled commercial bank, if that exemption is not mentioned specifically, we might as well deliver it and discuss internally, and that's what we have done. And then with approval of the management and in consultation with the Board, we have taken a prudent and conservative approach. That's where it stands, and that's the decision. And our internal stress testing clearly says next years, we are pretty well protected in terms of capital.

[M. B. Mahesh, analyst]

I agree to that, sir. I'm just kind of belaboring this point again is that, you could have had a conversation with the regulator on this topic as well, right, because it seems to be a little bit difficult in the way you seem to be looking at that circular as compared to every other player in the industry.

[Ratan Kesh, executive]

So my conversation with regulator on multiple parameters is part of -- part and parcel of a daily life, which we continue to do. As I said, this is a decision almost in line with the bank's philosophy of being conservative and follow the spirit rather than going by the letter. And that is something that we thought we will take a call internally.

[M. B. Mahesh, analyst]

Perfect. Sorry, just two other questions. One is just to answer the previous question, who was also asking on growth, from Jai. In this year, is there any revisit to the loan growth assumptions given the changes that you've seen in the RWA or CD1?

[Ratan Kesh, executive]

No, not required to be done that way. Our stated strategy of growing secured book and a guidance of loan book growth of around 18% to 20% and a deposit growth of higher than that will continue.

[M. B. Mahesh, analyst]

And you sorted the housing-related issue because that's -- that growth in that book continues to remain a bit weak.

[Ratan Kesh, executive]

It is slightly weaker as quarter 1. But if you look at the quarter 1 of the last financial year, it is significant growth from a Y-o-Y perspective. We had a great growth in quarter 4, but that's cyclical. We have sorted the problems in housing book.

[Operator]

The next question is from the line of Punit from Macquarie.

[Punit Bahlani, analyst]

Am I audible?

[Ratan Kesh, executive]

Yes, Punit.

[Punit Bahlani, analyst]

Just on this capital question, like not seen any other bank do this -- or to put like, there is another bank which has an MFI exposure, particularly smaller than you, but, a, do you expect that -- are there discussions with other banks as well? Or is there something specific to Bandhan because it seems pretty harsh. So just on that part.

[Ratan Kesh, executive]

We expect some conversation to happen from tomorrow onwards. As of now, we haven't had.

[Punit Bahlani, analyst]

Okay. Okay. Yes, and another point, I don't know if you said this earlier, but in the near term, we are not looking at any capital raise, right? Just asking this because our unsecured book is like higher than other banks. So -- and the Tier 1 has decreased substantially. So -- from the capital [ raise ].

[Ratan Kesh, executive]

So Punit, on a decision of this nature, obviously requires us to also go back and do stress testing and look at our internal models, and we have tested that. We -- as I said, we are pretty comfortable for the next few years. As my colleague Rajeev said, we will continue to have capital monitoring to support the growth. As of now, we don't feel the need for it.

[Operator]

The next question is from the line of Sameer Bhise from JM Financial.

[Sameer Bhise, analyst]

My question has been answered.

[Operator]

The next question is from the line of Nitin Aggarwal from Motilal Oswal.

[Nitin Aggarwal, analyst]

Sir, a couple of questions. Firstly, like any update on the CEO succession, has the Board submitted the names to the RBI?

[Ratan Kesh, executive]

As I mentioned in my opening remarks, the process is very much on, and it is on track as expected. We will continue to update you on any fresh development that comes on this. As of now, I am not in a position to communicate whether we have sent any names to -- it's being handled by the Board and the search committee.

[Nitin Aggarwal, analyst]

Okay. Okay, sure. And secondly, sir, like in this quarter, the CD ratio, which is like seasonally a weak quarter, and it inches up, but now with -- we are watching CD ratio very closely, and we are around 90% plus. So any particular level you would like to operate at? Any engagement with the RBI on this?

[Rajeev Mantri, executive]

Yes. So maybe I can take that. So CD ratio on a year-on-year basis, we are still seeing an improvement from circa 95% to almost 94%. Yes, on a sequential basis, we've seen a bit of an increase. But this is a key focus area. I think from a bank's perspective, we have been reducing it. If you look at the last 2 years or so, we have been bringing it down from circa 120% down to 100% down to almost 92% as of the end of March last -- this financial year. And then that's the direction of travel in terms of ensuring that we continue to operate within this range and even improve it further from here. So that's the endeavor that we are working on.

And as you have seen, our deposit growth has been generally higher on a year-on-year basis compared to the advances growth. So the liability-first approach or the strategic prerogative that we have is an important one and the entire team is clearly aligned to making sure that, that happens.

[Nitin Aggarwal, analyst]

Right. And lastly, any thoughts on how do we plan to use the like audit claim as and when it gets passed, now that the capitalization levels are also low after this change that you have taken? And earlier, we had thoughts to make some additional provisions. So what will our approach be now?

[Ratan Kesh, executive]

So first of all, we will wait for the audit outcome to come through, and we will -- as eagerly wait as all of you as to how soon it comes. We are confident that we will get an outcome. When it comes, we will take a decision how we should account for it.

[Operator]

[Operator Instructions] The next question is from the line of Ayushi, who is an individual analyst.

[Unknown Analyst]

I wanted to ask like how are we doing on the hiring strength? Like are our employee numbers increasing right now? Are we actively hiring?

[Ratan Kesh, executive]

Yes. Our employee numbers have been going up. However, given the fact that the bank has finished its core migration and is focused around digitization and technology upgrade, going forward, the incremental addition of employees will depend on the technology and digitization drive, and therefore, it maybe -- slightly lesser in percentage terms compared to the previous 3 years. But yes, our hiring continues to support the growth across multiple products and geographies.

[Unknown Analyst]

Okay, sir. Does this mean that branch growth will also be moderated going forward?

[Ratan Kesh, executive]

We mentioned in the past that over the last 18 months, we have added roughly around 500-odd branches. Going forward, number of new additional branches would be much lesser.

[Operator]

[Operator Instructions] The next question is from the line of Yuvraj Choudhary from Anand Rathi.

[Yuvraj Choudhary, analyst]

Sir, we have increased risk weights for EEB book as we were being conservative. Sir, just one question, why we have taken a risk weight route? And why have not we -- why had we not made provision buffer since we had a good quarter? Some color on it would be helpful.

[Ratan Kesh, executive]

So it's not about provision cover either or. We looked at the regulatory guideline, we interpreted, and we wanted to go by the spirit of it, and therefore, we took a conservative approach. Provision cover, again, we have already guided that we will continue to increase our PCR over a period of time and then take it to a higher number, and that grows. If you see this quarter itself, our PCR has gone up even though our portfolio quality has been significantly better.

[Rajeev Mantri, executive]

Yes. Yuvraj, if you see the numbers, our PCR increased from 71.8% in March quarter to 73.7% in this quarter. We have already increased our provision coverage ratio and the numbers that you see is after that increase.

[Operator]

The next question is from the line of Vatsal Shah from Knightstone Capital.

[Vatsal Shah, analyst]

Most of my questions have been answered. Just wanted to understand that in the SMA-0 and SMA-1 book, you mentioned that there have been some pockets of stress. Can you just mention like which are those areas which are experiencing such stress?

[Ratan Kesh, executive]

SMA-0 -- if you could repeat the question, please?

[Vatsal Shah, analyst]

Which specific areas [indiscernible] stress...

[Ratan Kesh, executive]

Okay. See, in the last quarter, the stress is coming from Punjab and Maharashtra primarily. Though there have been talks of Bihar as well, but Bihar has been doing well across thus far. But definitely, Punjab and Maharashtra are two states, which are giving a little bit of a stress. Though in our portfolio, we don't see that stress in the last quarter. There is a little bit of an uptick only in the recent last couple of weeks itself. But that's manageable because our portfolio is not so big in both these states.

[Vatsal Shah, analyst]

Okay. Got it. And just a last question on the CASA rate. So you mentioned that the retail portion of the liability side is growing on a year-on-year basis. But on quarter-on-quarter, the CASA was shifted down from 36% to 33%. So can you just mention like what was the specific reason for this CASA degrowth, not on the retail term deposits, but just the CASA.

[Ratan Kesh, executive]

Sujoy, our colleague, who heads our Liability and Branch Banking, could answer that.

[Sujoy Roy, executive]

Yes. So for CASA, degrowth on a quarter-on-quarter basis was on account of cyclical reasons. The March year-end there was large inflows in the last 10 days -- 10, 11 days. And since then, like the industry, that growth is evidenced even in the last quarter for the industry as well. So the decline per se is on account of the current account flows -- some current account flow is moving up. But on a stable growth, if I look at the individual components of CASA, savings and all this, there, we have seen a reasonable increase. And most of the moneys that have moved on has moved on to retail term deposits, where we've seen significant growth of 25-odd percentage.

[Ratan Kesh, executive]

So in summary, some money has moved from the savings deposits to retail term deposits. Number two, the stable CA and stable SA both have grown Y-o-Y.

[Vatsal Shah, analyst]

Got it. So is there any number for the CASA range like around 35% or something like that?

[Rajeev Mantri, executive]

I think our endeavor is to look at growth of the CASA ratio, I think, from the current levels. What we are trying to do is build some further capabilities within the bank, which will help us in terms of further generation of the current accounts, such as cash management capabilities. We are also looking at targeted customer value propositions for our savings book portfolio in terms of looking at how do we create unique customer value proposition for different segments of the depositors, salaried class, the senior citizens et cetera, and also for women.

And as a result of all of these capabilities being looked at, customer value proposition being looked at and also the emphasis on the digital channels like Rajinder mentioned, and also in terms of growth of or improvement or some reenergizing of our branches, we will see focus on the mobilization of the current account and savings account as a result of all of these. So we don't have a particular percentage or a number in place, but we will certainly continue to look at increase of the CASA ratios from this level based on all these initiatives.

[Rajinder Babbar, executive]

So Rajinder here. We have a clear-cut strategy on the CASA because the main -- the regular contributor to the CASA is the more and more savings and the retail current accounts. And you see when I said the Bharat QR code, this is one of these steps.

So accordingly, we are taking steps to ensure month-on-month basis, our CASA number, the price acquisition is improving as compared to the previous month. And that is our clear focus. We are now sourcing the CASA through our digital channel, which has -- we are able to see a growth of 20% to 30% in the CASA number. So definitely, all these steps will result into a better CASA ratio.

[Vatsal Shah, analyst]

Got it. Got it. And just the last question. I don't know if you would have the data handy or not. If you can give me the percentage like breakup of the fixed versus variable loans, if that's possible?

[Rajeev Mantri, executive]

Sorry, we don't have that, handy. We'll have...

[Ratan Kesh, executive]

We don't have that handy...

[Operator]

[Operator Instructions] The next question is from the line of Pranuj Shah from JPMorgan.

[Pranuj Shah, analyst]

I hope I'm audible. Just a couple of questions. One on your noninterest income, you have a release of provision on redemption of SR of INR 60 crores and also bad debt recovery of INR 46 crores. So what is your guidance on any trend that you can give out over here? And second question was a 10-basis point increase in yield on advances for this quarter sequentially, for that?

[Rajeev Mantri, executive]

Sure. So let me take that. I think within the other income, as you have rightly said, that there is a redemption of the security receipts for the ARC of about INR 60 crores. We are expecting on a quarterly basis a range of INR 60 crores to INR 70 crores of steady numbers to come through on this particular line. So I think that will continue to happen. I think your second...

[Pranuj Shah, analyst]

How many quarters, sir?

[Rajeev Mantri, executive]

At least as for this year. For this financial year, we expect that number to continue. I think your second part of the question was on yield on advances. So on yield on advances, we are at around 16% on our yield on advances. And we expect the yields to be impacted in the following manner: So whilst there is a growth, as we have said, that there is going to be a shift towards a higher mix of the secured assets. As a result of it, there would be some pressure naturally on the yield on advances. But we are expecting that to be offset in some portion through continued focus on reducing our slippages, which will help in terms of offsetting some of this decline that may happen.

And I think overall, whilst we expect some stabilization or some impact coming through, it will be range bound. So we do expect the yields to be between overall around 15% to 16%, that kind of range.

[Operator]

Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to the management for closing comments.

[Ratan Kesh, executive]

I want to thank everyone of you for participating in this call. Look forward to communicating any future development and engaging with you in the future. Thank you so much.

[Unknown Executive]

Thank you, everyone.

[Operator]

On behalf of Bandhan Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.