Private lender Bandhan Bank (Bandhan) during its analyst day last week articulated its strategy on portfolio diversification, geographical expansion and future growth along with delinquency and provisioning assessment for H2FY23. Most importantly, it has set expectations of another Rs 1,500 crore in credit cost for H2FY23 and normalisation thereafter. Overall, the bank is looking at 20-25% asset growth, steady-state credit cost of 180bps, ‘opex to assets’ at ~3% and RoAs in the 2.8-3.2% range.
The stress pool (31-90dpd + restructured accounts + NPA) is expected to rise from Rs 9,500 crore in Q2FY23 to Rs 10,200 crore in Q3FY23 and moderate to Rs 9,700 crore in Q4FY23. Provisioning is expected to inch up to Rs 7,400 crore in Q3FY23 and Rs 7,700 crore in Q4FY23. This excludes the benefit of Rs 930 crore from CGFMU (credit guarantee fund for micro units) recovery anticipated in Q3FY23. This suggests net incremental provisioning requirement of Rs 1,200 crore in Q3FY23 and Rs 300 crore in Q4FY23.
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Housing finance share will inch up from 26% in FY20 and 27% in H1FY23 to 30% by FY25. In the mortgage segment, the bank will expand its presence from higher end of the affordable housing segment to prime housing as well, through dedicated channels for sourcing prime mortgages. It will relaunch construction finance in identified markets and expand the range of LAP products.
Bandhan Bank targets to scale up its retail assets from 2.2% in H1FY23 to 6% by FY25. It will aggressively ramp-up its gold loan portfolio and has recently launched commercial vehicle and construction equipment (CV/CE) and used car financing. The bank is engaging with customers via digital marketing, offline channels and alliances. Granular retail deposit growth will be led by footprint expansion, customer acquisition ramp-up, ‘phygital’ delivery model and insight-driven operating models (IDOM) leading through data/analytics.
Incremental growth drivers would be—individual lending, mortgages, retail assets and commercial banking. Maintain BUY with an unchanged TP of Rs 365.