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Bandhan Bank Ltd
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Ladies and gentlemen, good day, and welcome to Bandhan Bank's Q2 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikash Mundhra, Head of Investor Relations. Thank you, and over to you, sir.
Thank you, Sagar. 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 September '24. We appreciate your time and participation today. We will take this opportunity to provide insight into our operational activities, including any significant achievements or challenges. We'll also touch on market conditions, strategic initiatives and any changes in our business environment.
To discuss all this in details, 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; and 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 required from the current quarter numbers and the way forward.
Now I would like to request our MD and CEO, Mr. Ratan Kumar Kesh, to brief you all on the bank's quarter performance.
Thank you, Vikash. A warm welcome and a very good evening to all of you. [Foreign Language] As you all are aware, 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 and further extended it by a month or until the new MD and CEO takes charge, whichever is earlier.
I'm happy to inform you that RBI has granted its approval to the appointment of Mr. Partha Pratim Sengupta as MD and CEO of the bank for a period of 3 years. Pursuant to this approval, the Board has earlier today approved the appointment of Mr. Sengupta as MD and CEO with effect from November 1, 2024.
Mr. Sengupta is an experienced banker who has nearly 4 decades of experience in the banking industry. He has worked in different geographies across various business verticals, including retail and corporate banking, and has leveraged technology and innovation for achieving business results. He brings a wide area of experience from his roles as Deputy Managing Director and Chief Credit Officer at State Bank of India and later as MD and CEO of Indian Overseas Bank. On behalf of Bandhan Bank family, I extend a warm welcome to Mr. Sengupta.
As our new MD and CEO joins us, we will work with him hand-in-hand to manage the transition and continue on the growth path of our bank as Bandhan Bank 2.0 with renewed energy and commitment.
Coming to the quarter, let me begin by talking a bit on the macroeconomic scenario. Despite global uncertainties, India's macro parameters remained strong. Real GDP witnessed a growth of 6.7% in quarter 1 FY '25. Against the backdrop of healthy business and consumer confidence, RBI expects real GDP growth of 7.2% during FY '25. CPI inflation is expected to average around 4.5% during FY '25.
Globally, several central banks, including the U.S. Fed, have started easing interest rates. The RBI continues to stay cautious. However, the stance of monetary policy has changed to a more nimble neutral from withdrawal of accommodation earlier. Banking system liquidity turned surplus in quarter 2 FY '25 from a deficit between January to June 2024.
The government maintains its focus on long-term goal of sustainable growth and development towards a Viksit Bharat with special emphasis on several key areas such as infrastructure, rural development, agriculture, MSME, affordable housing, employment, skilling, middle class and women empowerment. Bandhan Bank remains steadfastly committed to create greater impact by participating and contributing in this journey. Let me now move to the quarterly performance of the bank.
The last few quarters have witnessed a relatively tight liquidity environment and an extremely competitive landscape for brand deposits. Further, the microfinance industry has been facing headwinds and witnessing elevated risk in portfolio quality.
Whilst the microfinance sector continues to face headwinds, we have been proactive and have taken steps over the last 18-plus months to address the business risk. I'm happy to say that in quarter 2, we have been able to grow our overall business, driven by healthy growth in secured book while containing portfolio risk for sustainable growth in future.
In the quarter ended September 30, 2024, we have seen an improvement in business momentum, largely stable margins, control on operating expenses despite investment required to grow our secured book. Though the headline asset quality has marginally deteriorated, credit costs are largely in line with our guidance. The quarter has seen stability on return ratios. On Y-o-Y basis, we have seen improvement across all parameters.
In terms of balance sheet parameters, the bank has witnessed a strong pickup in both advances and deposits in line with our guidance. In this quarter, we have seen a sequential 4% growth in advances at INR 1.31 lakh crore with a Y-o-Y growth of 21.4%.
On the deposit front, deposit stands at INR 1.43 lakh crores with Y-o-Y growth of 27.2% and a quarter-on-quarter growth of 7%. Deposit growth remained higher than advances growth. Share of retail deposits was largely stable at 68%. The deposits market remained competitive, resulting in slightly higher cost of funds. Despite the change in product mix in favor of secured assets impacting the yield -- impacting yields, the bank was able to report healthy NIM at 7.4%.
Cost metrics are largely in line with our guidance, and we are committed to invest in people, products and technology over the next few quarters. We are moving rapidly in the digitization front for delivering superior customer experience, coupled with greater automated consoles. These initiatives are also helping us augment effective second line of defense. Our transformation program, including intelligent automation initiatives, RPA and AI adoption are looking quite promising and should enable us to drive greater efficiency from end-to-end perspective.
In quarter 2, the pain in the microfinance sector has increased. And accordingly, we have seen a marginal increase in slippages leading to a slight deterioration in asset quality. Gross NPA is at 4.7%, and net NPA is at 1.3%.
In quarter 2 FY '25, the bank reported a profit after tax of INR 937 crores, up 30% Y-o-Y, with an ROA of 2.1% and ROE of 16% on annualized basis. I'd like to thank the entire Bandhan Bank team for its unwavering commitment during this transition, and I'm confident that we will endeavor to achieve our strategy to the satisfaction of our stakeholders.
I would like to also take the opportunity to update you on the CGFMU audit. I'm happy to inform you that there has been a positive development on the same. As mentioned in our communication to the stock exchange on October 10, 2024, the in-depth audit has been completed. The historical context of the CGFMU scheme has been detailed in the stock exchange filing done by the bank.
But just to update that nearly 85% of the total portfolio of approximately 20,807 crores insured under CGFMU scheme had been repaid by customers. Based on the review of the outcome -- audit outcome, the NCGTC has assessed the total claim payout to the bank under the CGFMU scheme as on March 31, 2024, at INR 1,231 crores. Considering that the first claim of INR 916 crores had been settled, the final claim payout as on March 31, 2024 stands at INR 315 crores.
Further, the above claim amount is net of all recoveries approximately INR 228 crores claimed under the first tranche, which are currently held in the bank's balance sheet.
In summary, therefore, the outstanding claim payout of INR 315 crores and the recoveries from the first tranche claim held in the bank's books of INR 220 crores as on March 31, 2024. That is a total of INR 543 crores will be suitably accounted in the bank's P&L as part of other income on settlement of the claim.
In addition to that, regarding the ECLGS scheme, as the audit is now complete, the bank has been allowed by NCGTC to review and submit a fresh claim. Let me now hand it over the call -- hand over the call to my colleague, Rajinder Babbar, Chief Business Officer, to discuss on a few of the important business updates.
Thank you, Ratan. The bank's quarter 2 performance reflects that our growth momentum is robust and improving. Our performance is improving and is good in most of the parameters, in line with our guidance. This is the second consecutive quarter where the bank has performed better. I continue to visit and interact with my colleagues at the different offices and the branches. The excitement and the motivation that I observed make me feel elated and give me the confidence.
Our commitment to sustainable growth, delightful customer experience and the financial inclusion continue to drive us towards our goal of becoming a bank for all. With our wide range of services availed by more than 3.5 crore customers so far, the extensive network of 6,300 banking outlets across 35 states and UT, we are stepping towards our goal.
In quarter 2 financial year '25, we witnessed robust growth in our key metrics. On the deposit front, we grew better due to our targeted marketing strategies, coupled with our innovative product suite and extensive branch network. Overall, the deposit has grown 7% quarter-on-quarter and 27% Y-o-Y.
With our diversification strategy in place, as communicated earlier, we have taken a risk-calibrated customer-centric digital approach. We are strategically expanding the retail asset, housing finance and the wholesale banking. Our growth in segment in the quarter 2 strongly reflect the same. The retail asset has grown by 91% Y-o-Y with a quarter-on-quarter 20%.
The housing finance has grown by 16% Y-o-Y and 7.5% quarter-on-quarter. The wholesale banking has grown by 40% Y-o-Y and 14.8% quarter-on-quarter. As informed earlier, the [indiscernible] on our future growth will be one is the diversification. While East will continue to remain our stronghold, we are expanding our presence in the non-Eastern geography to increase the outreach of our services. We'll keep diversifying our loan portfolio across the product segment, catering to a wide range of customers. A strong emphasis is also on increasing the share of secured portfolio.
The secured portfolio from 42.8% has gone up to the 47%. The second, the innovative product to enhance the customer experience. The bank is committed to deliver excellence by offering products and services tailored to meet the requirement of the customer and to enhance their banking experience with us. We want to become a one-stop solution for all banking needs.
The bank is continuously introducing new products for its customers. Some of the key products launched during the quarter are the Avni account; GST and the pension collection; Delight, which is a loyalty reward; and the debit card for the non-individual. The third is in leveraging the technology to grow digitally. We recognize the digital transformation mission is key to our future success. Our investment in technology are enhancing customer experience and streamlining the operation.
We are committed to expanding our digital banking offering, enabling our customers to access service seamlessly. Our goal is to leverage technology to enhance efficiency, reduce cost, drive engagement, positioning Bandhan Bank as a leader in the digital banking space.
And the fourth and the most important is fostering a culture of risk and compliance. As we continue to navigate the complexity of our industry, it is essential to reaffirm our commitment to compliance at all levels. And it is not merely a set of rules, it is a fundamental aspect of our bank culture, and we believe it will be a key driver of our bank's long-term success.
The bank has enhanced its risk and compliance framework to identify potential challenges and the opportunity, and to safeguard the bank's interest, reputation and the long-term viability. Quality and the customer experience has been and will be our topmost priority going forward, too.
As we look forward to another quarter, I would like to reiterate our commitment of delivering our value to our customers as well as to our investors by driving an inclusive growth for our communities. Our strong performance in the quarter 2 financial year '25 is the beginning. We are excited about the road map ahead and confident in our ability to navigate the challenges and seize the opportunity for life between us.
Now, I would like to hand over to my colleague, Mr. Rajeev Mantri, CFO of the bank, who will run you through the key financials.
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 and half year ended September 30, 2024, at its meeting held earlier today. Let me begin with the details of the business numbers for the quarter.
On Advances, as of September 2024, gross advances stood at INR 1.31 lakh crores, which represents a growth of 21% year-on-year and 4% quarter-on-quarter, supported by growth in the secured assets book. Our secured book now constitutes around 47% of advances, which is higher from a level of 42% in March 2024. In line with the strategic plan of the product diversification, the focus is on growing the share of secured book such as housing, commercial banking and secured retail products.
Growth in EEB would also continue, albeit at a relatively lower growth rate than the secured assets. During this quarter, EEB portfolio increased by 11% year-on-year, but declined by 4% quarter-on-quarter at INR 59,288 crores as a result of portfolio controls in the wake of elevated risks in the industry. The secured book growth was contributed by retail assets, which grew at 92% year-on-year; commercial banking assets, which grew by 40% year-on-year; and housing, which grew at 17% year-on-year.
Retail asset growth is largely driven by auto loans, commercial vehicle and equipment loans and gold loans. From a business mix perspective, EEB group lending constituted 29% of advances, small business and agri loans at 16%, commercial banking at 25%, housing at 24% and retail at 6%, respectively.
The bank has made good progress on geographical diversification, whereby the share of advances in the East and Northeast regions have reduced by around 12% if you look at a longer range of history, from around 53% in FY 2022 to 41% by this quarter and increased in North, West and South regions by 3%, 2% and 7%, respectively, over the same time period.
Top 5 states, namely West Bengal, Maharashtra, Bihar, Gujarat and MP, contributes to 59% of gross advances. West Bengal contributed 23% of the advances versus 25% a year ago in Q2 FY 2024.
Moving to liabilities. As at September 30, 2024, the total deposits stood at INR 1.43 lakh crores as against INR 1.12 lakh crore in the previous year second quarter, which represents a growth of about 27%, which is higher than the advances growth.
The bank continues to focus on granular retail deposits. The total retail deposit, which is CASA plus retail term deposits, grew by 16% year-on-year, of which growth in retail term deposits was 24% year-on-year. The total retail deposits, which is CASA plus retail TD to total deposits ratio, was around 68%. CASA deposits stood at INR 47,283 crores, up by 9% year-on-year and 6% quarter-on-quarter.
Within CASA deposits, the savings account deposits have grown by 11% year-on-year and 7% quarter-on-quarter as the bank continues to focus on building relationships across its customer base, strengthen its value proposition and garner new customers. The CASA ratio has been stable quarter-on-quarter at 33.2%, which is just about 20 basis points lower than the last quarter.
Top 5 states, namely West Bengal, Maharashtra, UP, Odisha and City of Delhi, contributed 64% of total deposits. West Bengal contributed 40% of deposits versus 44% a year ago, reflecting reduced geographical concentration.
Moving to collections and asset quality. The bank's overall collection efficiency, excluding NPAs, in Q2 FY '25 was marginally lower at 98.2% as compared to 98.7% in Q1 FY '25. For the EEB book, collection efficiency, excluding NPA in Q2 FY '25 declined to 98.1% versus 98.7% in Q1 FY '25, reflecting the stress that is visible in the MFI segment.
However, collection efficiency for the non-EEB book improved to 98.7% versus 98.3% in Q1 FY '25. Within EEB, moderation in collection efficiency is largely in Rest of India portfolio while collection efficiency investment in Assam on sequential basis is largely stable at 99% and 99.2%, respectively.
On the asset quality front, the bank has seen some incremental stress this quarter. As a context, the bank has seen a slippage rate of beyond INR 1,350 crores in the first 3 quarters of FY '24, which reduced to INR 1,016 crores in March 2024 quarter and to INR 891 crores in the June 2024 quarter. However, in this quarter, which is Q2 FY '25, gross slippages were higher at INR 1,115 crores.
Increase in slippages in Q2 was mainly in the EEB book, where it increased to INR 752 crores as compared to INR 543 crores in the previous quarter. Upgradation and recoveries was INR 305 crores in this quarter versus INR 371 crores in Q1 FY '25. This excludes the recovery, which happens on the written-off portfolio, which is represented in other income, which was at INR 32 crores for the quarter Q2 FY 2025.
The overall EEB DPD pool, which is SMA-0, SMA-1 and SMA-2 was at INR 1,984 crores, representing 3.3% of EEB advances and reflecting an increase of INR 548 crores quarter-on-quarter. Within this, the SMA-1 and SMA-2 buckets witnessed slight upticks. SMA-1 book increased by INR 143 crores from INR 420 crores in Q1 FY '25 representing 0.7%, to INR 563 crores representing 0.9% in this quarter. And SMA-2 book increased by INR 102 crores from INR 436 crores in Q1 FY '25 representing 0.7% to INR 538 crores in Q2 FY '25 representing 0.9%.
Whilst the increases in SMA-1 and SMA-2 buckets have been contained in the context of the challenges of the microfinance sector, we are working hard on the SMA-0 bucket recoveries to ensure that these loans are regularized and do not slip into the higher buckets in the ensuing quarters. SMA-0 book has increased by INR 303 crores from INR 580 crores, which is 0.9% in the last quarter, to INR 883 crores in this quarter, representing 1.5%.
Credit costs for this quarter were at 2%. However, for H1 FY '25, which is for the half year, the credit costs were at 1.8%, which is the lower end of our guided range of 1.8% to 2% for financial year 2025. Gross NPA ratio was at 4.7% in Q2 FY '25 as compared to 4.2% in Q1 FY '25. Net NPA is at 1.3% versus 1.2% in last quarter, with largely stable PCR at 73.5%. Let me move on to the profitability.
Coming to the quarterly P&L, net interest income was at INR 2,948 crores, which grew by 21% year-on-year, supported by steady NIMs, healthy advances growth and lower slippages than the same quarter last year. However, sequentially, NII declined by about 2%, which was primarily on account of change in product mix towards secured and impact of higher slippages.
Our net interest margin or NIMs is at 7.4% in Q2 FY '25 as compared to 7.2% in Q2 FY '24, representing a 20-basis-point higher NIM on a year-on-year basis. It is important to note that despite pressure on cost of funds and change in the product mix, we have been able to sustain and protect the net interest margins on a year-on-year basis. On a half yearly basis, for H1 FY '25, NIM was at 7.5%, which is at the higher end of our guided range of 7% to 7.5%.
Net total income in Q2 FY '25 was INR 3,543 crores, which represents an increase of 19% year-on-year. Operating expenses on a year-on-year basis grew by 21% as a result of investments in people, technology and infrastructure and based on the business volume growth. During the quarter, operating expenses to average assets ratio was at 3.8%, whilst in the H1 FY '25, the OpEx to asset ratio was at 3.7%.
We guided that in FY '25, the cost to OpEx ratio should be at the similar level of FY 2024 as we would continue to invest in people, technology and building key capabilities through the year and the numbers are in alignment with the same guidance.
Consequently, operating profit in Q2 FY '25 was INR 1,855 crores, registering a growth of 17% year-on-year. The bank reported a net profit after tax of INR 937 crores in the quarter compared to INR 721 crores in Q2 FY 2024, reflecting a growth of 30% on a year-on-year basis. In Q2 FY '25, the ROA is at 2.1%, and the return on equity is at 16% for the quarter on an annualized basis.
I'll now briefly summarize the half yearly results. For the half year ended September 2024, NII was at INR 5,953 crores. Net total income was at INR 7,076 crores, and operating profit at INR 3,796 crores, all the 3 line items grew by around 21% year-on-year, respectively. The bank reported a net profit of INR 2,001 crores, which is INR 2,001 crores in H1 FY '25, compared to INR 1,442 crores in H1 FY 2024, representing a 39% year-on-year growth. Return on assets was at 2.3% and return on equity at 17.3% for the 6 months on an annualized basis.
And lastly, on capital adequacy, the CRAR is at 15.6%, including profits for the first half FY 2025. With that, on behalf of the management team, I would once again like to thank you and will just pass on to Ratan Kesh.
Thank you, Rajeev. I want to take a moment to express my heartfelt gratitude for the hard work and the dedication of all my colleagues as their commitment to excellence and collaboration has not gone unnoticed.
Last 4 months have been greatly rewarding experience for all of us and particularly for me during the transition phase of the bank. I also want to acknowledge the continuous support of and guidance of our Board members, investors, shareholders and most importantly, our valued customers. It is because of all of them, we've been able to grow sustainably. I hope and wish to get their trust and care in future as well as we move forward with greater confidence into the future. Thank you. Over to Vikash.
We can start the questions.
[Operator Instructions] Our first question comes from Piran Engineer from CLSA.
Congrats on the quarter, decent numbers in a tough quarter. Firstly, how should we think about slippages in the coming quarters? If you can give us a sense of maybe what percentage of your customers are overdue, but they're still paying their EMIs, or what percentage of your GNPA customers are paying in EMIs that will give us some color on future asset quality?
So broadly, given that overall industrial narrative, quarter 3 will remain -- our slippages will remain elevated as we have seen in quarter 1. While in our portfolio, we see the bigger problems are in specific geographies and not necessarily the entire state, in parts of a particular state. But in terms of percentages, Rajeev, just tell what the percentage is.
So if I can answer, Rajeev here. Piran, I think, as we have mentioned, we have seen the slippages a little elevated in this quarter itself by INR 225 crores. What we've also highlighted is the DPD pool, which is the SMA-0, SMA-1 and SMA-2 buckets, where we have seen an elevation, especially in the EEB book, which is the microfinance sector by almost INR 500 crores.
So these are, I think, indications. The team will work hard to make sure that we are able to stem and improve our collections and stem this kind of an increase. However, I think with the elevated risk in the industry, I think we also expect some bit of an impact could come through. Overall, as we have guided our credit cost, our credit cost for the first half of the year has been 1.8%. We had 1.6% in Q1 and 2% in Q2.
We had guided that we will be in the range of 1.8% to 2% of credit cost on advances for the full financial year. At this point of time, we continue to have the same guidance with the belief that, yes, in the third quarter, the slippages could be elevated and the credit cost could be elevated further. But by the fourth quarter, we would believe that the market would start showing some signs of positivity returning back.
And on an overall basis for the financial year, we would still like to be within that range. However, we will continue to monitor this and in the next quarter, be able to provide a closer update on how we are seeing the market.
Okay. Okay. That's helpful. Could you also just share what percentage of your customers are unique to you? How many have 1 additional lender, 2 additional lenders?
So Bandhan Bank Unique is 60%; Bandhan Plus 2, 80%; for us, Bandhan Plus 4 and above is 4.5%.
We are more secured because the Bandhan Plus 4 is only 4.5%. So mainly 60% is basically, we are the sole lender to the customer.
Understood. Understood. And also just on Slide 24, given the breakup of your other income. And there is this others line item which has doubled -- more than doubled Y-o-Y. Just want to understand what is that? Is there something lumpy in that line item, which is INR 184 crores?
Piran, sorry, just correcting this. Bandhan Plus 1 is 80% -- 60%, 80%, 4.4%. Bandhan Unique, 60%; Bandhan Plus 1, 80%; Bandhan Bank Plus 4 and above, 4.5%.
Got it. Okay.
Yes. On the noninterest income, I think your question is on the others where we are seeing a figure of INR 84 crores. This actually includes a portion of income that we have seen from the treasury teams, which is basically profit on sale of certain investments and the revaluation gains, which totals to about INR 80 crores, which is not a sort of regular feature every quarter. So this can be taken as a one-off for this quarter.
And in addition to that, I think there are usual charges like the average quarterly balance charges, which are about INR 19 crores, and I think that constitutes the reason why exactly some of this number is higher.
Understood. Understood. And just lastly, one confirmation. Your Tier 1 decline of 50 bps. That's just because you're not adding the profit of the quarter, right?
Yes. So if we add the profit for the quarter -- or for the half year, we are -- our total CRAR is at 15.6%.
The next question comes from [indiscernible].
I'm [ Gaurav Desai ]. I'm just a normal shareholder. I'm not an institutional shareholder. So my concern as a shareholder is looking at the value of the share, the decline in share value. So aren't we considering for buyback or some measures to boost up the share price?
So we have not taken any decision of that sort at this stage. So the simple answer is no -- at this stage, no.
Otherwise, we request you to just stick with the quarterly related questions. That would be great, please.
The next question comes from Prabal from Ambit Capital.
Sir, some of the -- some of your peer banks have mentioned that the forward flow rate this time has been quite high compared to the compared to the previous cycle. How is your experience on the ground, meaning if the account is turning into SMA, is the possibility of it becoming NPL has increased compared to the previous cycle?
Yes. Just give us a second.
Okay. I'll take that. Vishal here. I manage the EEB business. So overall, if you see, whatever elevation we have got on our SMAs, those typically, we're able to always connect 50% and above. And like what Ratan said earlier that our total state-level problems would be there also in parts of states. Overall, on a pan-India level, we are not that much on delinquency front simply because we took prior action.
So parts of states of Uttar Pradesh, Maharashtra, Gujarat, Tamil Nadu, where we have seen some stress on our EEB book. Having said which, I would say that 50% of that, whatever got elevated, INR 500-odd crores, we typically collect.
So INR 250 crores is something which we would like to work upon even more and get that amount collected over the times to come.
Further in totality, our SMA book and the SMA-2 book basically well under control and basically being better than the last year. No doubt, in September, a little bit movement is there. But if you compare September to the last year, the SMA-1 book was 0.9%. This year, it is 0.8%. So plus/minus is there. So we're much better placed as compared to '22-'23 and '23-'24.
And my second question was, we have seen a very strong growth in our commercial banking book. Just 3 to 4 years back, the NPL in this particular segment was as high as 10%. What is your feedback from the ground on asset quality in this segment? And how should we look at this going ahead?
So our asset quality in commercial book as of now is pristine, I would say. In fact, 93% plus is A+ and above -- A- and above. So the book quality is absolutely strong. The reason why we are growing commercial book are twofold.
One, clearly, we want to be growing a bit more secured. We also won some of these customers to be in our city to be able to do whole lot of other income businesses on trade, SCMS, ForEx and transaction banking businesses. So that's a clear achievement. On retail book, it's growing at 90%. The NPL levels are at the same steady to improving. So to that extent, I think retail is also looking quite good.
And how much of our commercial banking would be to NBFC MFI corporates?
Total INR 3,000 crores.
Okay. INR 3,000 crores is the NBFC MFI corporate exposure?
Right. Yes.
Sir, just last one question. On Tier 1, even if we include profit, which at 14% and industry-wide, we are seeing asset quality, too. Would you like to have more capital? Or say, would you be okay slowing down the growth in terms of capital? How too look at that?
See, as of now, our growth targets of 18% plus minus 1 with more secured buyers will continue to happen. And given the profit-generating capabilities that we are demonstrating, we are fairly comfortable at 15.6%. Having said that, we will continue to watch this space and keep evaluating and then take a call at some point. As of now, for the next 4 quarters, we don't see any need for us to do that.
Can you squeeze in one more question?
Yes.
Sir, on the Slide #18, there is a table of vintage analysis. Just curious as to the disbursement done in the previous quarter, the June quarter. How are these disbursements becoming SMA and NPAs. I mean what has changed in 90 days of customer assessment that accounts are becoming NPA and SMA?
So the collection efficiency, if you look at it, our collection efficiency on the full paying customer, that has come down by 130 basis points at overall level. The partial paying and the nonpaying customers has gone up by that extent. So that's the reality. It's an overall reflection of the over-leveraging and the overheating in the overall market.
Although West Bengal, which is our largest territory, we are holding at 99%, but rest of India has come down by 100 basis points. So it is a reflection of that. Clearly, while in my book, Bandhan Plus 4 is just about 4.5%. But after taking an exposure from me, somebody would have taken exposure outside. So it's a overall market liquidity issue. Some of these sales will flow into us. But as of now, it's just about 0.02%, which is not very alarming.
Just for the further update on the vintage analysis of the disbursement, disbursement of the quarter 4 and the quarter 1. Basically quarter 1, the SMA-1 is 0.35%, SMA-2 is 0.17% and NPA is just 0.06%. So whatever the book we created in the quarter 1.
The question was that just in 90 days of disbursement, even having this much amount of SMA and NPA...
If I would just add here, this is coming from cross linkages. You're talking about 0.06%, right? NPA with 0.02%.
That's SMA-1, right?
SMA-1, SMA-2, yes.
No, SMA-1, right? 0.02% number is what you are speaking here?
The totality, SMA-1, SMA-2 and NPA.
So let's go quarter-by-quarter. If you see first, let me tell you, whatever we have disbursed quarter-by-quarter, over the years, if you see, there is a marked improvement. If I see quarter of '24, if I have to compare it with quarter of '23.
Similarly, the last 2 quarters of our disbursal of INR 13,000 crores, INR 14,000 crores, our total SMA is around about 0.5% and NPA is 0.06%. And that 0.06% also got a component of link loans. That some other relationships could be there, 1 or 2 loans here and there, which has resulted into NPA. Otherwise, fresh NPAs in the last 90 days have been 1 or 2 loans out of 15 lakh loans we would have disbursed.
And deposits too, this 0.02% is something what Ratan again spoke of that there are customers who have taken a loan. These are 4 months vintage of a 12-month loan book. So 0.02% of that would have also gone bad outside and similarly with us also, they have not performed. So within giving a loan million 4 months, they've become delinquent. That is 0.02% of [ loans ]. So we track this number very closely and take action as well.
The next question comes from Jai Mundhra from ICICI Securities.
Congratulations on decent number. I have a couple of questions. First is, so how do you look at the disbursement in MFI going forward? I mean it has been coming down and maybe the first half is usually a bit weaker. But as we go into October and festive season, how do you look at the disbursement in the MFI in the near term?
So one, as a bank, we have decided to be a bit more secured, which means that micro will grow, but the other businesses will grow at a much faster pace. So that's at one level. Second, generally, quarter 3, quarter 4 are better quarters for us traditionally.
Having said that, this year, we have, in a sense, have been bucking the trend by growing well in quarter 1, but quarter 2, purposely, we have decided to be a bit more watchful and careful across various states and specific pockets and even specific BUs.
And given the elevated risk in the industry, we would like to maintain similar watchful posture in quarter 3 as well. In October, we are already seeing some bit of a better uptick, both in terms of collection efficiency in the regular pool. And if, therefore, it turns around positively by January, we will then have an opportunity to grow that book.
So as of now, I would say we will be more careful in containing the portfolio quality rather than focusing too much of a growth in the microfinance portfolio.
I think just to supplement, Jai, Rajeev here, 2 more points. One is, on an overall basis, as Ratan mentioned, while the advances growth we're expecting at 18% plus minus 1%, I think EEB, we will be working towards a growth of between 10% to 12%. And I think that is the broad range that we have seen in the first half, and we would continue to see. At the same time, I think the risks which are there are elevated. But we are also clearly evaluating the risk in which particular geographies and which particular states within the country and within that, which particular cities. And therefore, those targeted actions have been done for portfolio controls in those areas.
But other areas where the risks are lower, but we will clearly be looking at the opportunities for growth. And I think that's within the overall guidance that we mentioned of between the 10% to 12% growth.
Right. And sir, on asset quality, I mean if I look at the slippages for this quarter for MFI that you mentioned at around 700 plus, this turns out to be around 5% on an annualized basis. Is there any difference in individual and group delinquency or you would believe that both are more or less operating in the similar band within MFI?
While both are operating in the similar band, but clearly, individually is doing better than the group at this stage for us. And that's the reality, and that's almost expected that when a bit of an industry overall issue happens, generally, the individual behaves better than the group.
And sir, a related question with growth and asset quality. So in the last 2 years, you have been calibrated in the MFI loan growth, right, if I look at last 2 years, CAGR will be single digit, maybe 5%, 6% in MFI growth, whereas other players which have grown at a much faster pace. And hence, the industry itself has grown at a very high clip.
Would you believe that the lenders have which have grown slower are better placed? Or because this time around, the asset quality issue is not in your assessment and you're not in your underwriting, but maybe the marginal lenders or the third, fourth, fifth lender, the issue possibly has come up from their side. Would you believe that the lenders which have grown slower are better off or there is not too much a preference?
I think, frankly, your question has an answer built into it. It's a fact that over the last 2, 3 years post COVID, the industry has been growing at -- our view is that, rather at a significantly higher rate of growth while you've been growing moderately. And more importantly, we have also been taking a lot of guardrails and to improve our portfolio quality.
So some of these have been helping us to improve. Having said that, while we are 60% Bandhan, 80% Bandhan Plus 1, but we still have 4.5% or let's say, about 8-odd percent Bandhan plus 3 or more. And some of these are going to come back. And when the borrowers are coming back for renewal, we are obviously taking steps.
We have also taken a few more steps in improving our bureau score, et cetera, in specific pockets and geographies. Having said that, yes, we will still be holding on. That's why our credit cost guidance continues to remain in the 1.8% to 2% for this year. And we will look at it, review it and then come back to you with more information as we get it by end of quarter 3. But I would say that we are not isolated. We will still be better than others, hopefully, but we are not isolated.
Just adding to Ratan, basically, our main aim is for this quarter because keep in mind the current situation, we will more focus on our existing customers because we know they are the regular customers paying us for the last for many years. So our main focus for the growth will be our existing customers more as compared to the MTP.
Right. And sir, just related to this, RBI has recently banned 4 MFI lenders. And if you want to put together the combined AUM, it is a higher single digit at the system level, right? Now they will probably not do -- not disburse loan incrementally. Is that an asset quality risk at the system level? Or you believe that is not a problem even from asset quality perspective?
So these entities who have received that regulatory sort of guidance show of action are very strong entities per se. And our belief is that they will obviously are taking corrective actions and quickly go back and ensure that short steps are undertaken.
Having said that, a certain amount of disbursement moving out of the industry, definitely would pose a risk to the overall industry to an extent. But given the size of these entities put together, may not necessarily be too high. So the risk may not be as elevated -- an additional risk given this fact.
But overall, over-leveraging and its impact, how long it sustains is something that we are still also observing.
Right. And last question, sir, from my side, is we have grown significantly in the secured book this time. I mean MFI has been degrowing and there is a significant growth in secured. And still, the yields for the margin impact has been very resilient. Is there some -- I mean, how would you explain this that MFI growing -- degrowing and some of the secured assets growing at a very fast pace and yet the yields have not been impacted too much. Is that the yield likely -- I mean, is that the pressure likely in the coming quarters? Or you would have -- the yield of those products are also relatively comparable?
So the short answer is yes, that in the coming quarter, we may see some stress in the overall yield, but we will still remain in the range of guidance that we've been providing. Rajeev, if you could give a bit more color to that?
Yes. So I think 2, 3 factors. One is within the secured book, obviously, we are also looking at the products which can give us good yield. So I think there is that calibration that the business team continuously looks at.
Second is on a year-on-year basis, if you look at it, while quarter-on-quarter, the slippages may have been elevated and the portfolio quality of the credit cost might be elevated. On a year-on-year basis, we still see an improvement compared to the levels that were there last year versus the levels now. And therefore, there is that much of belief that comes through on the net interest income or net interest margin and the interest income as well from a year-on-year perspective, right?
So I think that comes through as well. But as Ratan rightly mentioned, some of these do have a bit of a lag effect. So we should see, I think, some moderation in the next quarter. Albeit we still, as we have guided, our broad range of net interest margin between 7% to 7.5%. Our endeavor is to be within that particular range, and we feel confident about that.
The next question is from Param Subramanian from Nomura.
Most of them have been answered. But on Slide 6, you've given your loan mix and we've seen over the years -- the last 2 years, we've seen a sharp increase in the retail loan mix. I think over the last 2.5 years, the number has gone up about 4x. So if you could just remind us what are the products that contribute to this retail mix, which are the predominant products? Yes, that's question 1.
Yes. So I think within retail, the growth is coming through primarily from secured assets, which is gold loans; the auto loans, which is both 4-wheeler and 2-wheelers; as well as commercial vehicle, commercial equipment. So these are the key drivers of the growth within retail assets.
And we have a team, which is really spread across the entire country. We are looking at sourcing across the country. And clearly, the progress in terms of the year-on-year growth as well as the sequential growth has been quite remarkable.
So I just want to add that we will continue to see a significant growth in retail portfolio because 1,700 branches that we have, we still have enormous amount of opportunity to sort of leverage that, do cross-sell through these existing branches, as also tap some of the other potential, including digital lending channels and others.
So to that extent, I think that portfolio will continue to grow. But albeit, our focus is to grow more secured in the retail portfolio as well while maintaining the portfolio quality.
And Param, Slide 10 in the deck actually gives you more details. It has the breakup.
Perfect. Yes. That's helpful. Secondly, the credit cost guidance that you've given for the full year includes the write-back that we are going to get from CGFMU or how should we look at it?
No. No, the CGFMU money that will come through, as we have mentioned, will be part of our other income because the associated portfolio was already technical written off in the March quarter. And on written-off accounts, if you get an income, it's actually going to the other income. So that's not part of this.
So this is on the current sort of NPA books that we are particularly guiding you the credit cost.
[Operator Instructions] The next question comes from Nitin Aggarwal from Motilal Oswal.
So a few questions. One is on -- if you can talk about how much of the yield differential between the EEB book and rest of the segments, like the retail and the small enterprise loans? Because there is a 400 basis point drop in mix of MFI and CD ratio has also declined sharply, but margins have been very resilient and dropped just 20 basis points. So just explain this math actually.
Nitin, actually, the yield difference is roughly around 10% between the EEB book and the overall secured portfolio books.
But then why the NIMs or the yields have held up so well because there is a 400 basis point exchange with EEB going down, then the impact on margins?
Two points, as Rajeev mentioned. One is this lag effect. Second is clearly the credit cost has been -- the slippages on the credit cost has been better compared to the previous year. So these are the 2 broad factors.
Okay. Okay. And the second thing is like on the CGFMU...
Sorry to interrupt. Mr. Aggarwal, we had...
We can't hear you clearly.
Nitin, if you could repeat the last part of the question?
Yes, sorry. Sorry for that. My question is on the experience that we had with the CGFMU claim and the audits that happened. So what will our approach be to the CGFMU cover on an incremental basis? How do we plan to go about that?
So the CGFMU audit, it was -- the experience has been a little bit exceptional. I will tell you why, because this whole portfolio is FY 2021, which was a peak of the COVID period. And therefore, we would believe for the sake of humanity, that similar experience doesn't happen to anybody in the future.
Having said that, in general, we believe that if there are opportunities available in terms of participating in the government schemes and the grants and in some of these valuable schemes, we will continue to participate in that in future as well. How, how much, which way, that obviously the future will tell us.
Okay, okay. And last is on the retail assets, which you're seeing a healthy growth. So how many products have you really broken even in this segment? And what is the ROE that you make in this portfolio?
I think the retail assets' journey started only a couple of years ago for us. It's been 2 to 3 years. So as part of the journey, it's still early stages, the business is ramping up quite well. And I think any new business, which gets started does take time to break even and increase profitability.
Having said which, I think year-on-year, we are seeing the overall contribution of this business improving. But it takes time for our business to fully mature, like we have some of the other businesses, which have been there for some time as mature businesses. We are working in that direction for retailers as well.
The next question comes from Prakhar Sharma from Jefferies.
Congratulations and best of wishes. I wanted to ask you, you had made material changes to your underwriting policies introducing the cooling off period, the 30-day, 60-day, 90-day period. So can you discuss how much of your book has actually gone through this change of underwriting standards? And do you think that's one reason why the book will behave well?
And secondly, can you discuss what sort of investments you have made in the broader collections and recovery platform?
So I'll answer both. So one is that out of the total INR 60,000-odd crores roundabout book that we have, INR 3,000 crores will be pre-April 2023 regime when we started putting those cooling period guardrails. So that's a limited size of the book that we still have outstanding in our book today.
Therefore, is it one of the factors? Definitely, yes. That cooling period that we introduced has definitely an impact on our portfolio quality. But I'll still maintain the fact that given the overheating, overleveraging in the industry for the remaining percentage of 4.5%, 5%, we are not isolated. To that extent, it will still remain elevated for us in the next quarter. We believe that quarter 4 should -- it should turn around and turn positive. The second question that you had was?
Investment in collection.
Investment in collection, we are implementing the best-of-breed collection system. I'll not name it, but that's something which is the best-in-class system, which is used by the very scale players. We hope to go live with that pretty much by end of this quarter.
Also, we are deploying more collection resource across the entire network of banking outlets that we have because not only that we are seeing improvement in collection -- putting a dedicated collection officer helps in improving the collection in the early buckets as well. So we will continue to make that investment in that area.
And is it possible for you to share the exposure, the EEB segment exposure for the top 5 states individually? You've shared for West Bengal, but is it possible for you to share for the other states, the top 5?
Top 5, number 2 is -- yes, we have given that.
Sorry, have I missed it?
Just hold on for a second. If I have to add here, we have really invested quite a bit on our credit structure. We are very -- one of the very few organizations who have got an independent credit vertical across our EEB segment, which is not there if you see in many of the organizations.
In terms of the bureau scores also, we've been stringent in terms of the areas where it has not performed well. across the industry. So these proactive measures of ensuring stringency on our growth and being conservative has helped us in good stead if I have to compare it to the other marketplace. So that's one.
Other thing what Ratan spoke in terms of collection. The entire setup is there, which distinguishes between 60 DPD, which business is responsible for collection, and beyond 60 DPD, it's independent collection vertical augmented with collection system coming up.
With these good practices, we have ensured that we have to compare to my peer growth, even with an elevated SMA bucket numbers, you have to compare a much better off in terms of last year comparison, vis-a-vis, my peer group comparison.
On the top 5 states, just to add up, number one...
So maybe I can just read out. So we have roughly -- so the top 5 states that we have is West Bengal, which has roughly around 36%. And then we have...
Rajeev, this is only the EEB part, right?
We're talking about the EEB, that's correct. Yes. So basically, the top 5 states that we'll have is basically West Bengal, Bihar, Assam...
Sorry, can you give the percentages also?
Yes. One second. We'll just provide that.
We don't have it ready. But what we have on the back of the call, I could say, West Bengal is the topping chart. Then we have Bihar. We have Assam, Maharashtra and MP, in that order.
Understood. Understood. Got it. Probably Bihar is the one where, among the top 5, where you have the highest level of stress building up?
Okay. Sorry. So Bihar is holding up pretty well for us. West Bengal is doing very well. Assam, as you see, is doing extremely well for us. Odisha is a little bit of a problem. Parts of UP, bit of a problem. Maharashtra, parts of Rajasthan, bit of a problem. So it's like not the whole state, it's just parts of it.
Interestingly, you are saying that in the top 5 states, 5 states are holding up well. It's outside the top 5 states where you are seeing a higher elevated sort of...
Maharashtra is elevated, in parts like what Ratan spoke. Bit of UP, Eastern One is also elevated and that's one of the market as well. Our good state that's still continues to hold good is West Bengal, which is our state, which we have good strength here. Bihar for us is doing very well.
That's interesting too hear.
And these are 2 large big states for us.
Even Assam, right?
Assam does very well.
Assam is also doing well.
Assam is doing very well. So the top 3 states, the ones that are really doing well.
And my last question. It's slightly contextual. Can you give us a sense of what's happening on the ground in terms of getting access to credit because this segment of customers do rely on getting access to slightly steady state of credit flow. But if lenders are always cautious about whether they will be the last ones to be paid off. So is there a credit freeze in the market? Is there a probably more rationed credit, but not a freeze. So can you give us some flavor of what's happening on the ground?
There's no freeze per se. Look, the SRO guidelines have been sort of adopted by most of the MFIN partner players. 10% to 12% drop in disbursement is clearly sort of seen in the overall market for the 4-plus lenders. So to that extent, if someone is already overleveraged with 4-plus lender exposure, that clearly, there is a bit of a guideline and most of the players have adopted to it.
The next question comes from Abhishek M. from HSBC.
I have just one question. Your credit cost guidance for the year, how much have you assumed for EEB or for MFI basically?
Around 3% plus.
Okay. And do you think that is sufficient given whatever slippages, et cetera, you have seen so far?
Yes. So like I said earlier, I think this is within assumption that whilst we are clearly seeing that the risk is elevated and we've seen the impact of that in second quarter, and we expect that impact to come through in the third quarter as well. We do have a belief that by fourth quarter, the situation should start to turn around to some extent. That is a belief as of now. However, as we have said that we will continue to monitor this. And if this becomes prolonged, we will certainly come back by the next quarter with an updated guidance.
Ladies and gentlemen, we would take that as the last question for today. I would now like to hand the conference over to Mr. Ratan Kumar Kesh, MD and CEO, for closing comments.
Thank you, everyone, for joining the call, and thank you for your continued support. We look forward to your support in future as well as we welcome our new MD and CEO and take this brand to a new level. Thank you so much.
Thank you, everyone.
On behalf of Bandhan Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.