Bandhan Bankbsmedia.business-standard.com/_media/bs/data/market...The bank’s gross/net advances in FY16 stood at Rs 155.8bn/Rs 124.4bn; since then, it has grown its gross/net advances

The Evolving Story

Bandhan Bank

Initiating Coverage

December 15, 2020

Shreepal Doshi ([email protected], +91 99786 71550),

Rohan Mandora ([email protected], +91 97370 65666)

Refer to important disclosures at the end of this report December 15, 2020| 1

India Equity Research | BFSI

December 15, 2020

Initiating Coverage

Bandhan Bank

Evolving biz model, profitable franchise

➢ Bandhan Bank (Bandhan) has seen a remarkable transition to an universal bank with

new non-MFI product additions. Its distinctive business model is backed by industry

leading track record in MFI and Housing (erstwhile Gruh Finance) coupled with one of

the fastest growth in deposits (54% CAGR over FY16-1HFY21).

➢ While underpenetrated/rural geographies remain focus areas, Bank plans to re-

classify/expand the product bouquet under its Vision 2025 with a target loan mix of

30%/30%/30%/10% for EEB/Mortgages/CB/Retail segments.

➢ In Oct’20, ~95% of Bandhan's MFI customers have started paying, leading to ~91%

collection efficiency. COVID provisions stand at Rs 21bn (2.7% of gross loans).

➢ Expect 2H disbursements to be healthy. We build in 24%/25% CAGR for gross

loans/deposits over FY20-FY23 with RoEs of ~23% for FY22/FY23 each. Initiate with

LONG with Mar’22 TP of Rs 490, valuing the company at 3.3x on FY23E ABV.

Remarkable transitioning from MFI to universal bank: Bandhan secured RBI’s ‘in-principle’

approval in Apr’14 and began banking operations in Aug’15. The bank delivered gross

loan/deposit CAGR of 43%/54% over FY16-1HFY21 to Rs 774.6bn/Rs 661.3bn, with a

customer base CAGR of 22% over this period. Robust deposit franchise is on the back of (1)

healthy SA/CA of 33%/5%, (2) retail TD contributing ~41% of deposits and (3) liability

customer base of 5.1mn. We however believe the bank’s deposit market share in its key states

in East/NE states is still low at 1.5% and can increase further.

Revamping product bouquet: Bandhan has revamped its business strategy in 2QFY21 with

a FY25E asset target mix of (1) Emerging Entrepreneurship Business (MFI) at 30% (vs 62%

currently), (2) Commercial banking (SME, Samruddhi & SEL) at 30% (vs 28%), (3) Retail

products (gold, PL, 2W) at 10% (vs 1% currently) and (4) Mortgages (micro, affordable, prime)

at 30% (vs 25%). We expect NIMs (on avg. assets)/RoA to contract to 7.1%/3.4% in FY23E

(FY20: 8.5%/4.1%) amid a shift to relatively low-yield products. However, RoEs are likely to

remain best-in-class at ~23% in FY23E.

Healthy PPoP CAGR, contained credit cost: Bandhan delivered a NII/PPoP/PAT CAGR of

61%/85%/82% over FY16-FY20. While it maintained NIMs of 8-10% in this period,

operational leverage led to strong PPoP growth. The bank has emerged stronger post the AP

crisis, demonetization, Assam agitation and impact of floods and cyclones with resilient asset

quality and growth. Even post current pandemic, collection efficiency trends has been steadily

improving with Oct’20 CE at 91% with 95% paying customers. The bank is carrying a 2.7%

provision buffer (Rs ~21bn on gross loans) and guided for 3.5% COVID-related credit cost.

We expect credit cost of 2.8%/1.6%/1.5% in FY21/FY22/FY23.

View: We appreciate the bank’s track-record to absorb event risks and believe it is well

equipped (professional expertise, network and customer franchise) to change its loan mix and

capitalise on the cross-sell opportunities. Initiate coverage with LONG. Key risks: Uptick in

rural NPAs, delayed economic revival and imposition of lockdown.

Relative price chart

Source: Bloomberg

Analysts

Shreepal Doshi

[email protected]

+91-079 6190 9541

Rohan Mandora

[email protected]

+91-079 6190 9529

95

210

325

440

555

Oct

-19

Jan

-20

Ap

r-2

0

Jul-

20

BANDHAN IN Nifty Index

CMP Target Price

Rs 412 Rs 490

Mar 2022

Rating Upside

LONG 19% ()

Stock Information

Market Cap (Rs Mn) 663,715

52 Wk H/L (Rs) 527/152

Avg Daily Volume (1yr) 18,239,190

Avg Daily Value (Rs Mn) 80.0

Equity Cap (Rs Mn) 387

Face Value (Rs) 10

Share Outstanding (Mn) 1,610.4

Bloomberg Code BANDHAN IN

Ind Benchmark BANKEX

Ownership (%) Recent 3M 12M

Promoters 40.0 (21.0) (61.0)

DII 12.7 4.6 (8.1)

FII 32.2 17.8 (14.4)

Public 15.1 (1.5) (16.6)

Financial Summary

YE

Mar

Rs mn

NII PPOP PAT EPS

(Rs)

ABVPS

(Rs)

P/E

(x)

P/ABV

(x)

ROE

(%) RoA (%)

Credit

cost

(bps)

FY20A 63,239 54,466 30,237 18.8 91.9 21.9 4.5 22.9 4.1 262.2

FY21E 76,014 60,467 29,840 18.5 102.1 22.2 4.0 18.2 2.9 280.0

FY22E 90,945 73,115 44,156 27.4 125.7 15.0 3.3 22.8 3.5 157.0

FY23E 109,294 87,468 52,929 32.9 149.0 12.5 2.8 22.8 3.4 150.0

Source: Company, Equirus Research

Bandhan Bank (BANDHAN IN) India Equity Research | Initiating Coverage

December 15, 2020| 2

Bandhan – the evolving story

Transformation from NBFC-MFI to a universal bank

Bandhan had secured the RBI’s in-principle approval in Apr’14 and the final nod in Jun’15. Bandhan

Bank was incorporated in Dec’14 as a wholly-owned subsidiary of Bandhan Financial Holdings and

began its operations in Aug’15. Bandhan Financial Holdings Limited is owned by Bandhan Financial

Services (BFSL) – the largest NBFC-MFI until all its business was transferred to Bandhan Bank.

Bandhan began its journey in 2001 as Bandhan Konnagar, a NGO, providing microfinance services

to women in rural West Bengal. BFSL started its microfinance business in 2006 and the NGO

transferred its microfinance business to BFSL in 2009; thereby, the entire microfinance business was

taken over by BFSL. At the time of this transfer, BFSL was India’s largest microfinance company by

number of customers and loan portfolio size. Under the universal banking license norms, the bank was

required to form a NOFHC to be the bank’s promoter and therefore Bandhan Financial Holdings

Limited was incorporated. The bank was also required to bring down promoter holding to 40% within

five years of commencement of business. The Gruh merger and the recent block deal (Aug’20) enabled

the bank to meet this regulatory requirement.

The bank’s gross/net advances in FY16 stood at Rs 155.8bn/Rs 124.4bn; since then, it has grown its

gross/net advances book at a 43%/48% CAGR during FY16-1HFY21 to Rs 774.6bn/Rs 733.1bn.

Further, Bandhan has a customer base of ~20.8mn borrowers, which have grown at a 22% CAGR

over FY16-1HFY21. About 90% of Bandhan’s loan book is PSL compliant.

The deposit franchise registered a 54% CAGR over FY16-1HFY21 to Rs 661.3bn. CASA ratio improved

from 21.6% in FY16 to 38.2% in 1HFY21.

Exhibit 1: Net Advances CAGR of 48% over FY16-1HFY21

Source: Company Data, Equirus

124,375 168,391

297,130

396,434

666,299

733,067

35.4%

76.5%

33.4%

68.1%

20.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

FY16 FY17 FY18 FY19 FY20 1HFY21

Net Advances (Rs Mn) Growth - YoY (%)

Secured universal banking license in

Jun’15 and began operations in Aug’15

Gross/net advances CAGR 43%/48%

during FY16-1HFY21 to Rs 774.6bn/

Rs 733.1bn

Deposit CAGR of 54% over FY16-

1HFY21 with CASA ratio at 38.2%



Merger with Gruh Finance

On Jan’19, Bandhan approved its merger with Gruh in an all-stock deal (share exchange ratio at

568:1,000 for Bandhan: Gruh). As on Sep’18, Gruh had an advances book of Rs 166.6bn and

Bandhan Rs 333.7bn, leading to a total advances book of Rs ~500.4bn.

This merger benefitted Bandhan in two ways:

1. Diversification of product line from an MFI player (86% of book in Sep’18 to 58% post-

merger) and delivering healthy gross advances growth of 38% yoy in FY19.

2. Bringing down BFHL’s (non-operating promoter entity) stake from 82.3% to 61% as required

by Sep’18 RBI guidelines.

However, the merger pushed up the bank’s CoF (FY20 CoF at 7.8% vs. 5.5% in FY19) with Gruh’s

borrowings also coming on Bandhan’s balance sheet. That said, most borrowings have been replaced

by deposits in the last six months. With this merger, blended yields are also expected to moderate as

Gruh’s housing product rates range between 9-14% vs. Bandhan’s MFI product yield of ~18%.

Exhibit 2: Standalone loan book split in 2QFY19


Exhibit 3: Loan book split post-merger in 2QFY19


Exhibit 4: Bandhan Bank – Brief timeline

Year (FY) Events/Brief overview

2001 Began journey as Bandhan Konnagar, an NGO, providing microfinance services to economically weaker women in rural WB

2006 Bandhan acquired an NBFC and established it as Bandhan Financial Services (BFSL). Focus on the micro finance segment continued

2009 The NGO transferred its microfinance business to BFSL; thereby, the entire microfinance business was undertaken by the latter

2014 BFSL received an in-principal approval from RBI in Apr'14 to set up a universal bank. Bandhan Bank was incorporated in Dec'14

2015 Bandhan Bank began its operations in Aug'15. The entire microfinance business was transferred from BFSL to the bank. The bank started operations

with a network of 501 branches and 50 ATMs.

2018 Bandhan Bank launched its IPO worth Rs 44.7bn in Mar’18 at the issue price of Rs 375

2019 Announced and completed merger with Gruh Finance in an all-stock transaction


86%

14%

Micro Banking Others

58%28%

14%

Micro Banking Retail Home Loans Others

Board of Directors of Bandhan Bank &

Gruh Finance approved the merger in

Jan’19

Post-merger MFI book shrunk to ~60%

vs. 86% earlier; promoter shareholding

declined to 61% from 82.3% earlier



Bandhan’s Vision 2025

During Sept’20, Bandhan launched its FY25E Vision which revolves around becoming a one-stop

solution for all customer needs. The bank aims to:

(1) Increase its product bouquet

(2) Geographically diversify and enhance branch presence

(3) Leverage cross-selling opportunity to its customer base

Exhibit 5: Bandhan Bank’s Vision 2025

Product-wise Loan Split

Sep'20 FY25 E

Geography-wise Loan Split

Branch Network Strategy

Source: Equirus, Company

*EEB Individual is part of CB for FY25 projections

62%

3%

25%

9% 1%

EEB Group EEB Individual* Mortgages CB* Retail

30%

30%

30%

10%

EEB Group Mortgages CB* Retail

13%

53%

12%

7%

6%

9%

Central Eastern North Eastern Northern Southern Western

23%

23%

4%14%

19%

17%

Central Eastern North Eastern Northern Southern Western

~3x



Investment Rationale

Largest MFI lender with a proven track record

MFI remains an attractive segment

The microfinance industry has grown at a ~29% CAGR to Rs ~2.3trn (without SHG) over FY16-FY20.

Banks enjoy the largest share in this segment at ~40% followed by NBFC-MFIs and SFBs at ~31%

and ~19% respectively. With the conversion of Bandhan from a NBFC-MFI (FY16), and also the

merger of Bharat Financial with IndusInd bank (in FY19), the share of banks within the ecosystem has

increased to ~40%. In terms of geography, the eastern region continues to be largest contributor at

~33% followed by South/West/North/Central/North East at ~27%/15%/11%/8%/6%. While the

largest ten states form ~83% of the overall GLP, the three largest states in terms of MFI exposure are

Tamil Nadu (~14%), West Bengal (~14%) and Bihar (~11%).

The industry is regulated in terms of spreads (10% over and above CoF), even as players enjoy RoAs

ranging from 3-5%. However, with focus on the lower income group category, the industry is exposed

to multiple risks arising from (1) natural calamities (cyclone and floods), 2) political uncertainty/

interference (loan waiver announcements) and (3) socio-economic events (protests). While such events

tend to hit MFI lenders/industry for that select year, past trends indicate that the recovery to growth and

profitability has also been the fastest for them.

Exhibit 6: Gross Loan portfolio stands at Rs ~2.3trn


Exhibit 7: Banks have emerged as the largest lender in the sector


Exhibit 8: Eastern and Southern states form ~60% of GLP


168 174 249 401

847

1,072

1,358

1,874

2,318

0

500

1,000

1,500

2,000

2,500

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Gross Loan Portfolio (Rs bn)

0%

20%

40%

60%

80%

100%

FY16 FY17 FY18 FY19 FY20

Bank NBFC-MFI SFB NBFCs MFIs Eastern South West North Central North East

Banks dominate the microfinance

segment with a ~40% share



We have sized the market in sync with the traditional method of estimating the number of households

to assess the loan opportunity. With smaller households and nuclear families, we expand the potential

universe to the entire female population in the country, in the lendable age group of 19-59. We ascribe

demographics on income patterns and assume that 60% of them could be eligible for micro finance.

Exhibit 9: Potential universe for micro credit lending

Total population Units Overall India Assumptions

Female Population between 19-59 mn 390

Female Population between 19-59 mn 234 Assuming 60% of women can be financed

Average ticket size Rs 35,000 Assuming ATS of Rs 35,000 which is ~32,000,

expect increase in ticket size

Demand for micro credit Rs bn 8,190 Potential demand is nearly 4 times today's

outstanding (excl. SHG).

Source: Equirus, Company Data

Globally, close to 20% of borrowers are men; also, Latin America men are more than 35% of borrowers

even as this number in South Asia is far lower at 11%. However, we have excluded financing to men

under MFI norms in this exercise; not doing so would have increased the potential market opportunity.

Bandhan’s market share at 19-20% in overall MFI ecosystem

With gross loan outstanding for the MFI sector at ~Rs 2.3trn, Bandhan’s market share in the ecosystem

is 19-20%. While the industry has grown at a 29% CAGR over FY16-FY20, the bank has delivered a

~32% MFI book CAGR during this period.

Most NBFC-MFIs follow Bangladesh’s Joint Liability Group (JLG) model wherein group members have

the responsibility/liability to make good for any defaults of a group member. However, Bandhan follows

a unique structure; while MFI loans are given in a group structure, individual members are not a part

of any joint liability structure. Each group member is separately evaluated by loan officers based on

bureau checks and other qualitative aspects; thus, members in the same group can have different ticket

sizes/ tenure/EMIs for their loans. These loans remain unsecured in nature.

Exhibit 10: Microloan product types

Micro loan products Brief Ticket size Tenure Rate of Interest Processing fees

Suchana For creating additional source of income by

using the money for co-run businesses Rs 1,000 to Rs 25,000 Up to 1 year

Linked to MCLR.

currently, it is 17.95% No

Srishti For scaling up current business Rs 26,000 to Rs 1,50,000 Up to 2 years Linked to MCLR.

currently, it is 17.95% 1% + GST

Suraksha For medical emergencies to existing customers Rs 1,000 to Rs 15,000 Up to 1 year Linked to MCLR.


Susikhsha For education fees of existing

customer's children Rs 1,000 to Rs 10,000 Up to 1 year

Linked to MCLR.



Exhibit 11: Bandhan has the lowest interest rate for MFI loans

MFI – Interest rate (%)

Bandhan Bank ~18%

Ujjivan SFB 22% - 23%

Equitas SFB 22-24%

CreditAccess Grameen 19% - 21%

Spandana Sphoorty 20-22%

Bharat Finance - IndusInd Bank ~20%


MFI market size to be Rs ~9tn (~4x

from the current size)

MFI loans don’t have the joint liability

framework, with each member

separately evaluated



Robust growth driven by healthy new customers acquisition, strong customer retention

Bandhan delivered a ticket size/borrower addition CAGR of 17%/14% over FY16-1HFY21. As on

Sep’20, the bank had a base of ~11.2mn MFI customers, of which ~55% have 4+ years of vintage.

The bank is comfortable lending up to Rs 150,000 to high-vintage MFI customers; the ticket size to

first/second cycle customers is capped at Rs 50,000. Further, about 55% of MFI borrowers are only

Bandhan borrowers (unique to the bank) and ~82% to Bandhan along with one MFI. In terms of

customer profile, ~75% are associated with agri & allied (~44%) and food processing & retail stores

(~30%).

Some practices followed by Bandhan:

• Weekly collection model

• Individual credit evaluation of members within a group

• No joint liability of members within a group

• Loans given for business purpose only, and therefore not given to customers with fixed income

as their primary source of income

• Only one loan/household or one loan/member is given (exception: emergency/education

loans)

• No loan renewal until the customer is 40/80 weeks into the cycle for 1/2yr tenure loans

Bandhan has not signed the ‘Code for responsible lender’ by MFIN.

Exhibit 12: Peer comparison on ticket size, AUM and active MFI customers

FY17 FY18 FY19 FY20 1HFY21

FY17-

1HFY21

CAGR (%)

MFI ticket size (MFI book/Active

customers)

Bandhan Bank 29,667 35,858 40,690 41,462 44,446 12.2%

Bharat Financial 17,186 20,585 23,533 23,363 NA 10.8%*

CreditAccess 21,205 26,871 28,987 29,583 28,812 9.2%

Satin Creditcare 15,598 20,866 17,380 20,714 19,223 6.2%

Spandana 12,283 19,964 17,772 26,572 28,504 27.2%

Asirvad 14,663 16,248 21,338 23,218 21,613 11.7%

MFI AUM (Rs Mn)

Bandhan Bank 205,295 276,110 386,149 461,898 497,800 28.8%

Bharat Financial 91,500 125,940 174,170 224,280 223,830 29.1%

CreditAccess 30,754 49,747 71,593 119,960 111,820 44.6%

Satin Creditcare 35,845 50,100 54,730 63,800 59,590 15.6%

Spandana 12,971 31,664 43,720 68,290 73,540 64.2%

Asirvad 17,595 24,372 38,408 55,026 49,710 34.5%

Active MFI customers (Mn)

Bandhan Bank 6.9 7.7 9.5 11.1 11.2 14.7%

Bharat Financial 5.3 6.1 7.4 9.6 21.7%*

CreditAccess 1.5 1.9 2.5 4.1 3.9 32.5%

Satin Creditcare 2.3 2.4 3.1 3.1 3.1 8.9%

Spandana 1.1 1.6 2.5 2.6 2.6 29.1%

Asirvad 1.2 1.5 1.8 2.4 2.3 20.4%


*CAGR for FY16-FY20

As on Sep’20, Bandhan had a base of

~11.2mn MFI customers, of which

~55% have 4+ years of vintage



Exhibit 13: Bandhan’s MFI book CAGR ~30% over FY16-1HFY21


Exhibit 14: Borrowers up by ~13% CAGR over FY16 - 1HFY21…


Exhibit 15: …whereas O/s per borrower grew at 15% CAGR


Exhibit 16: Disbursement CAGR at ~39% over FY16-FY20


Exhibit 17: Customers in essential segment form ~-75% of loans


Exhibit 18: Above Rs >50k exposure constitutes ~50% of the book


153.8

205.3

276.1

386.1

461.9 497.8

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

0

100

200

300

400

500

600


Bandhan - MFI book (Rs Bn) Growth - YoY (%)

0%

5%

10%

15%

20%

25%

0

2

4

6

8

10

12


Existing Borrowers (Mn) Net borrowers added (Mn)

Growth - YoY (%)

23,478

29,667

35,858

40,690 41,463 44,446

0

10,000

20,000

30,000

40,000

50,000


O/s per borrower (Rs)

0%

20%

40%

60%

80%

100%

120%

0

100

200

300

400

500

600

700


Disbursement (Rs Mn) Growth - YoY (%)

45%

30%

14%

11%

Agriculture & Allied Food processing & Retail

Non-Essential Mfg Others

50%

36%

14%

Rs <50k Rs 50k - Rs 100k Rs >100k



Although Bandhan has 1,045 branches and 3,300 doorstep service centres across India, the East and

North-eastern states (together ~80% of MFI book) remain key business geographies, especially for the

MFI product. Within MFI, the focus is to serve the rural and semi-urban customers (~78% of the book).

Exhibit 19: East & NE remain the concentrated geography for MFI…


Exhibit 20: …exposure to urban/metro limited at ~22% of AUM


Proactive transitioning strategy for vintage MFI customers

Having been in the ecosystem for almost two decades, Bandhan has ~55% of its MFI customers in the

4+ cycle vintage group. To retain and be a part of customer growth story, the bank has strategized

the transitioning of these customers to fulfil their increased capital requirements. Under the new strategy

(launched in 2QFY21), Bandhan has unveiled the Samruddhi product to transition existing 4+ old

cycle customers to individual loan products with increased ticket sizes. The practice of customer

transitioning from the group structure/JLG model is not something new (already seen for Ujjivan SFB

and CreditAccess Grameen).

Key features of the transitioning strategy:

1. Make the customer exclusive to Bandhan

2. Underwriting practice involves household income; FOIR ranges between 50-60%

3. Interest rate is same as MFI loans (~18% currently) and the ticket size is capped at

Rs 300,000 for the product

4. Payment cycle change to monthly from weekly. Individual payment method from door-

step collection.

81%

19%

East & North East Rest of India

78%

22%

Rural & Semi-urban Urban & Metro

Unveiled Samruddhi to transition

existing 4+ old cycle customers to

individual loan products with increased

ticket sizes


December 15, 2020| 10

Developing a complete housing product bouquet

Bandhan’s merger with Gruh, a housing finance company, has facilitated the addition of a secured

product line (along with substantial book size) and brought on board a vastly experienced management

team. Prior to the merger, Gruh’s loan book stood at Rs ~166.3bn, of which 93% was contributed by

retail home loans.

Exhibit 21: Gruh Finance loan book before the acquisition (2QFY20)


Exhibit 22: Loan book split before the merger


At the time of merger, Gruh’s management team was retained. Even post-merger, this segment of the

product line is managed by the old Gruh Finance team headed by Mr. Sudhin Choksey.

Gruh has long history of operating in the low-ticket (Rs 0.8-1.0mn) home loan financing for self-

employed customers. In this segment, it enjoyed a spread of 3.2-3.5% and contained its credit cost to

25-30bps during FY11-FY18; the company delivered a ~22% loan book CAGR in this period. Gruh’s

expertise in this segment is further reflected in it RoA/RoE profile which ranged at 2.4-3%/ 28%-34%

during FY11-FY18.

Leveraging Gruh’s business to establish presence across housing finance segments

Bandhan intends to leverage Gruh’s business and technical knowhow and roll out products in branches

(esp. in North/East) of Bandhan wherein Gruh centres are not present. At the time of merger, Gruh

had 194 branches of which 76% were in western (~51%) and central (~ 25%) states. Bandhan also

plans to tweak the Gruh product by (1) increasing avg. ticket size to Rs 1.4mn-Rs 1.5mn (vs. Rs 0.8mn-

Rs 1mn) and (2) increasing LTVs to ~75% from 60-65% currently. The sourcing model and underwriting

practices for the product will remain intact. We believe rollout of Gruh’s housing product at all bank

branches will not come at significant cost, with no major branch expansion/set-up costs.

Bandhan aims to launch micro and prime housing products to cater to all customer segments. Micro

housing will be operated from EEB branches and will have an Avg ticket size of ~Rs 0.5mn with a

similar pricing profile as that of MFI loans. However, customer property will be mortgaged. While the

prime housing product will be in-line with large private banks in terms of pricing, ticket size and LTVs.

We believe the strategy to have presence across ticket sizes within the housing finance segment is a

right move as the bank’s organic customer franchise is also from different income segments. Further,

this move will aid in attracting new customers.

111

132

156

174 182

0

20

40

60

80

100

120

140

160

180

200

FY16 FY17 FY18 FY19 2QFY20

Loan Book (Rs Bn)

83.6%

10.0%

4.6% 1.9%

Housing Mortgages Construction NRP

Intends to tweak Gruh’s products as

well as launch micro and prime

housing products


December 15, 2020| 11

Exhibit 23: Extensive presence in East and North-Eastern states with opportunity to expand in southern and western states

Source: Company Data (as on Mar’20), Equirus

Uttarakhand

Manipur

Mizoram

Tripura

Rajasthan

Bihar

West Bengal

Jharkhand

Odisha

MadhyaPradesh

Maharashtra

Karnataka

TamilNadu

Dadra&Nagar Haveli

Assam

National CapitalTerritory

(NCT) ofDelhiHaryana

HimachalPradesh

Arunachal Pradesh

Kerala

Andaman & NicobarIslands

Punjab

Chandigarh

2

Gujarat

Goa

Andhra Pradesh

Puducherry

Uttar Pradesh

Chhattisgarh

Telangana

NagalandMeghalaya

Sikkim

1

Jammu & Kashmir

67 333 5

1,018 3,346 195

No. ofBank Branches

No. ofBanking Units

GrandTotal

No. of Home Loan Centres

14 24

2 1

15 34

12 25

22 20

20 132 14

22 80 11

39 185 33

54 155 51

86 448 1

384 928 2

25 92 1

1 6

1

2 3

2 6

2 5

27 39

1 7

76 351

36 146

9 36

4 27

1 4

2 4

23 65 17

18 50 129

1

1 1 1

37 84 47


December 15, 2020| 12

Revamping overall asset book strategy

Over the last five years, Bandhan has forayed into various products (apart from MFI) in order to

retain the existing micro-banking customer base and provide a broader bouquet of products to liability

customers.

The bank has revamped its strategy and classified asset products in four segments:

1. Emerging Entrepreneurship Business

2. Commercial Banking

3. Retail Banking

4. Housing Business

Bandhan plans to have a separate team for each product segment at every branch. The MFI,

Samruddhi and micro housing businesses will be done from EEB branches (currently MFI branch) by

having an additional room at the same branch. However, there will be a separate team for each

product. Besides, we believe Bandhan’s strategy of transitioning vintage customers to non-group,

individual lending framework, will enable it to become an exclusive lender to vintaged customers

(consolidation of borrowings at customer level). Further, customer stickiness will increase due to lower

pricing (lower MFI loan yields owing to CoF benefits).

The retail, SEL, SME and prime housing (incl. HL by Gruh) business will be carried out from banking

branches, with the rollout of each product at all branches done in a calibrated manner. The SEL loan

is unsecured in nature and the ticket size is up to Rs 1mn with the pricing ranging between 15-17%.

The underwriting process for this product depends on (1) past two years financials, (2) GST return filling

and (3) credit bureau check of customers/entities.

SME (includes WC & term loans) is a secured product with a much higher ticket size depending on the

credit requirement, eligibility and mortgage valuation. The underwriting process for credit evaluation

is the same as for SEL loans.

Gruh’s HL product will be launched at banking branches wherever its centres are not present. While

Gruh’s sourcing (exclusive agent driven) and underwriting model will not be disturbed, transitioning to

a higher ticket size and placing it in different ticket size brackets will increase competition for the

product.

While the broader strategy is well focused in terms of customer needs, we believe Bandhan has limited

business experience in these categories and implementation will be a key challenge and monitorable

over the next 2-3 years. Further, the rollout of Gruh’s affordable housing product is yet to be done at

all Bandhan branches (currently only at 160 bank branches).

Limited business experience in housing

loans to be a key challenge and

monitorable over the next 2-3 years


December 15, 2020| 13

Exhibit 24: Segment-wise product details and strategy

Sr.

No.

Products

categories Products Customers strategy Brief

1

Emerging

Entrepreneurship

Business (EEB)

• MFI - Group Loans

• Open market and existing MFI

customers

• It will have only group MFI loan customers

• Will continue to add 15-20% new customers

• Bank has proven underwriting model for this segment

2

Commercial

Banking

• Individual loans

/Samruddhi

• Small Enterprise

Loans (SEL)

• SME loans

• Loans to NBFC

• Samruddhi – transitioning of existing

customers

• SEL – Acquisition from open market

• SME - Acquisition from open market

• NBFC – Based on track-record and

financial situation

• Transitioning the vintage MFI customer towards the next product

segment to fulfill higher credit requirement. Strategy is to consolidate

the borrowings of customers. Joint loan with Husband.

• Business visibility/income evaluation is done for these vintage

customers while giving higher ticket sizes under the Samruddhi

product

• For SEL/SME product category – GST fillings/return are evaluated

along with past two years of financials. While SEL is unsecured

product, SME loans are secured and against properties

(Home/commercial) mortgages. SEL

• Within the NBFC book, the bank lends to Small/Mid-sized NBFCs

3 Housing Business

• Micro Housing

Finance

• Affordable

Housing

• Prime Housing

• Micro HF – Existing MFI customers &

new acquisition of customers from

open market

• Affordable & Prime – Existing deposit

customers & new acquisition of

customers from open market

• Bank will add Micro housing product with avg ticket size of Rs

<0.5mn

Gruh's product will be towards affordable housing segment with ticket

size of Rs 1.5mn. No change in sourcing & underwriting process for

the Gruh product

• Bank will also add Prime Housing product which would be in-line

with banking peer's

4 Retail Business

• 2-Wheeler

• Personal Loans

• Gold Loan

• Vehicle Loans

• Broadly provide these lending

products to existing customers

(particularly deposit customers) and

also to new customers

• Idea is to cater to broader needs of the general banking customers

by having a diversified bouquet of products. 2W, PL and GL will be

focused products within this segment.

• Retail products will be competitive with the other banking peers.



December 15, 2020| 14

Exhibit 25: Product details

Product

Category Sub-Product Brief

Product

type

Interest rate (% -

P.A.) Tenor Ticket size

Processing

fees

Branch

Network

MSME

Loans

WC Loans

Create Income-generating Assets &

enhance liquidity

All existing profit-making entities are

eligible

Secured

10% - 16%

Repayable on

Demand

Based on

Documents

submitted

1% plus

processing

fees

Bank

Branches

Term Loans

For individuals/ proprietorship/

partnership with min 2 years of

experience in same line of business

Secured

7 years

including

moratorium of

max 3 months

Based on

Documents

submitted

1% plus

processing

fees

Bank

Branches

Micro Enterprise

Loans

For borrowers who have completed

min of 4 cycles of Suchana/Srishti

products under the MFI framework of

bank

Unsecured

Linked to MCLR.

currently, it is

17.95%

Up to 2 years Rs 150,000 -

Rs 300,000

1% plus

processing

fees

EEB Branches

Micro Bazaar

Loans

For small entrepreneurs with fixed

delivering service and have supersaver

account with Bank. This is for non-

existing Suchana, Srishti & Micro

enterprise loans.

Unsecured

Linked to MCLR.

currently, it is

17.95%

Up to 2 years Rs 26,000 - Rs

150,000

1% plus

processing

fees

EEB Branches

Samriddhi Loans

For borrowers who have completed

min 2 cycles under the MFI framework

of bank

Unsecured

Linked to MCLR.

currently, it is

17.95%

12 Months, 18

Months & 24

Months (3

options)

Rs 75,000 - Rs

300,000

1% plus

processing

fees

EEB Branches

Small

Enterprise

Loans

Collateral free income generating

activities loan in the form of working

capital or asset creation for business

Available for Self-employed

professional/Non-professional with min

2 years of vintage in the same line of

business

Unsecured

Linked to MCLR.

Varies between 17%

- 19.5%

TL - Max 3 Yrs

WC -

Repayable on

Demand

Rs 100,000 -

Rs 1000,000

2% plus

processing

fees

Bank

Branches

Retail

Loan

Two-Wheeler

Loan

For MB and liability customers - it’s a

cross-selling product Secured

Linked to MCLR.

Varies between

15.5% - 19.07%

Max 3 years

Depends upon

the vehicle &

credit

evaluation

2% plus

processing

fees

Bank

Branches

Loan against

Deposit For liability customers Secured

Rate varied between

TD rate +

1.5%/2.0%

Max 3 years Depends upon

the TD Zero

Bank

Branches

Personal Loans

For existing Bank customers. Amoung

eligibility would depend upon credit

evaluation.

Loan in customer accounts in 2

working days

Unsecured

Linked to MCLR.

Varies between

15.0%-16.18%

12 Months to

36 Months

From Rs

50,000 to Rs

500,000

Bank

Branches

Gold Loans

To meet immediate financial needs.

Among can be disbursed in 45

minutes.

Customer gets free locker facility

Secured Ranges between

10.99% - 18.00%

6 Months to 36

Months Min. Rs 10,000

1% plus

processing

fees

Bank

Branches

Agri

Loans

To meet fund requirement for short-

term cultivation requirement, post-

harvest expenses, consumption needs,

maintenance needs & investment plan

for farming.

Unsecured 12 Months to

60 Months

Rs 25,000 - Rs

10,000,000

EEB Branches

Gruh

Home

Loans

Housing Loan

Focused on affordable housing

The ticket size will be increased to Rs

1.4-1.5mn (from Rs 0.8mn - Rs 0.9mn

currently)


8.75% - 12.00%

Up to 30 years

Bank

Branches

LAP

To fulfill financing requirement against

property

60% LTV in self-occupied houses and

50% in commercial properties


10% - 13.5%

NA

Bank

Branches

Prime

Housing

Loans

Bank will be launching the product

which will be in line with peer banks

The ticket size for the product would be

higher than the affordable housing

product

Secured Same as peer banks

Up to 30 years Bank

Branches

Micro

Housing

Loans

Bank will be launching the product

which will be for low-income group

customers

The ticket size (up to Rs 0.5mn) for the

product would be lower than

affordable housing product.

Secured Same as MFI loans

NA

EEB Branches



December 15, 2020| 15

Remarkable growth of the Deposit franchise

Bandhan has delivered a robust 54% deposit CAGR over FY16-1HFY21. All its MFI customers (asset

customers) have savings accounts with the bank. However, micro-banking customers only contribute

~5% of total deposits. Apart from MFI customers, the bank has added liability customers at a very

healthy rate over the last five years. Strong deposit growth has been on the back of healthy CASA ratio

of ~37%/~38% for FY20/2QFY21 – much ahead of peers (who began the banking journey almost

together) and just 5-7% lower than large private sector banks. A key reason for such healthy SA ratio

of ~33% is its high concentration in the East and North-eastern states where savings account balances

have been higher as compared to other states in west and south.

RBI data on deposits reflects that the SA ratio in the East and North-eastern states has been higher than

other regions. The bank has deep penetration in these states due to its MFI business, facilitating a

strong brand connect. Considering that customer behaviour in these states is to maintain relatively

higher SA balances, we believe there is a big opportunity for Bandhan to continue attracting healthy

SA. Further, we believe the deposit franchise will continue delivering healthy growth with the maturing

of branches in the West, North and South.

Over the last couple of years, the bank’s strategy has focused towards leveraging its branch network,

digital channels, partnerships and presence in various ecosystems to expand its customer base.

Exhibit 26: Robust deposit CAGR of 54% over FY16-1HFY21…

Source: Equirus, Company Data

Exhibit 27: …led by active new customers acquisition…


Exhibit 28: …and steady increase in retail TD


94,831

232,287

338,690

432,316

570,815

661,300 145%

46%

28% 32% 32%

0%

20%

40%

60%

80%

100%

120%

140%

160%

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000


Deposits (Rs Mn) Growth - YoY (%) - LHS

2.4

3.5

4.4

5.1

0.0

1.0

2.0

3.0

4.0

5.0

6.0

FY18 FY19 FY20 1HFY21

Liability Customers (Mn)

0%

25%

50%

75%

100%


CA SA Retail term deposit Bulk term deposit

Strong deposit growth has been on the

back of a healthy CASA ratio of

~37%/~38% for FY20/2QFY21


December 15, 2020| 16

Exhibit 29: Healthy CASA of >35%


Exhibit 30: Active focus on non-concentrated deposit franchise


Exhibit 31: Retail deposits to total deposits have steadily ramped-up


Exhibit 32: Share of East & NE contributes ~60% of deposits


0%

10%

20%

30%

40%

50%

FY18 FY19 FY20 1HFY21

CASA Ratio (%)

Bandhan Bank Ujjivan SFB Equitas SFB AU SFB

20.9% 18.8%13.1% 15.7%

98.3%

73.6%

41.8%

29.0%

57.0%

37.1%32.7%

32.0%40.9%

25.0% 23.4%

0%

25%

50%

75%

100%

FY17 FY18 FY19 FY20

Concentration of top 20 Deposits

Bandhan Bank Ujjivan SFB Equitas SFB AU SFB

70.7%

72.0%

77.0%

78.4%

77.00%

66%

68%

70%

72%

74%

76%

78%

80%


Retail deposits to total deposits (%)

64.0% 59.0%

12.0%13.0%

10.0% 12.0%

9.0% 9.0%

5.0% 7.0%

0%

20%

40%

60%

80%

100%

FY19 FY20

East & NE Western Northern Central Southern


December 15, 2020| 17

Exhibit 33: Still potential to ramp-up CASA/branch metric


CASA/Branch (Rs Mn)

HDFC Bank 655.7 716.7 766.6 894.8 941.9

ICICI Bank 508.9 595.7 664.6 653.3 689.4

RBL Bank 318.1 403.0 450.2 443.4 504.1

IndusInd Bank 272.7 331.3 400.8 439.9 480.9

Bandhan Bank 81.4 124.2 178.7 206.6 241.9

AU SFB NA 56.6 111.5 93.3 100.5

Equitas SFB 100.5 45.4 62.7 60.5 86.8

Ujjivan SFB 86.8 7.4 15.0 25.4 30.8

CASA ratio (%)

ICICI Bank 50.4% 51.7% 49.6% 45.1% 43.8%

HDFC Bank 48.0% 43.5% 42.4% 42.2% 41.6%

IndusInd Bank 36.9% 44.0% 43.1% 40.4% 40.3%

Bandhan Bank 29.4% 34.3% 40.8% 36.8% 38.2%

RBL Bank 22.0% 24.3% 25.0% 29.6% 31.1%

Equitas SFB 17.2% 29.2% 25.3% 20.5% 25.2%

AU SFB NA 26.9% 18.5% 14.5% 19.8%

Ujjivan SFB 1.6% 3.7% 10.6% 13.5% 16.5%

SA/Branch (Rs Mn)

HDFC Bank 410.6 467.5 487.4 573.1 641.7

ICICI Bank 354.3 412.9 467.1 461.3 486.1

RBL Bank 161.0 201.5 254.5 248.9 319.3

IndusInd Bank 225.3 325.9 327.2 278.0 298.8

Bandhan Bank 64.1 98.4 142.1 174.1 210.5

AU SFB NA 46.2 77.9 65.8 80.9

Equitas SFB NA 34.6 49.4 50.9 76.1

Ujjivan SFB NA 6.9 13.4 21.4 24.4

SA Ratio (%)

Bandhan Bank 23.2% 27.2% 32.4% 31.1% 33.3%

ICICI Bank 35.1% 35.8% 34.9% 31.9% 30.9%

HDFC Bank 30.1% 28.4% 26.9% 27.0% 28.3%

IndusInd Bank 21.4% 30.3% 28.0% 26.3% 25.0%

Equitas SFB 13.8% 22.3% 19.9% 17.2% 22.1%

RBL Bank 11.1% 12.2% 14.1% 16.6% 19.7%

AU SFB NA 26.9% 18.5% 14.5% 15.9%

Ujjivan SFB 1.6% 3.4% 9.5% 11.4% 13.0%

Total Deposit/Branches (Rs Mn)

HDFC Bank 1,365.1 1,647.7 1,809.0 2,118.7 2,263.9

RBL Bank 1,447.2 1,656.7 1,802.3 1,497.7 1,620.8

ICICI Bank 1,010.4 1,152.6 1,339.6 1,448.1 1,575.1

IndusInd Bank 1,054.8 1,077.0 1,170.4 1,057.2 1,193.1

Bandhan Bank 276.5 361.8 438.5 560.7 632.8

AU SFB NA 210.2 603.2 644.4 508.1

Equitas SFB NA 155.2 248.1 295.6 344.9

Ujjivan SFB NA 81.3 140.8 187.5 186.8



December 15, 2020| 18

Exhibit 34: North, North-eastern and East based states have seen relatively higher CASA and SA ratio

North North Eastern East Central West South

CASA ratio (%)

2QFY21 39.5% 58.5% 47.4% 51.8% 36.6% 41.7%

4QFY20 39.9% 58.7% 46.9% 51.5% 36.6% 40.6%

2QFY20 38.5% 57.4% 46.7% 51.8% 34.7% 40.3%

4QFY19 39.4% 58.5% 47.5% 53.1% 36.0% 41.3%

4QFY18 39.1% 58.6% 47.2% 53.3% 35.7% 41.6%

SA ratio (%)

2QFY21 31.4% 50.2% 41.2% 46.0% 24.4% 32.7%

4QFY20 31.4% 48.5% 40.5% 45.3% 23.4% 31.9%

2QFY20 30.5% 48.7% 40.3% 45.6% 22.7% 31.7%

4QFY19 30.8% 46.9% 40.6% 46.3% 22.7% 32.5%

4QFY18 30.3% 46.9% 39.9% 46.2% 23.3% 32.7%

Source: RBI, Equirus

Exhibit 35: While the deposit share from these geographies has been low as compared to West and South

4QFY18 4QFY19 4QFY20 2QFY21

Current Saving TD Total Current Saving TD Total Current Saving TD Total Current Saving TD Total

North 20.0% 19.8% 22.5% 21.4% 19.1% 19.8% 22.1% 21.0% 19.1% 19.8% 21.5% 20.7% 19.3% 19.7% 22.1% 21.0%

North Eastern 2.4% 2.7% 1.4% 1.9% 2.4% 2.8% 1.4% 1.9% 2.1% 2.9% 1.4% 1.9% 1.8% 2.8% 1.4% 1.9%

East 10.3% 16.2% 12.1% 13.3% 9.8% 16.5% 12.1% 13.3% 9.1% 16.1% 12.0% 13.1% 9.0% 15.9% 11.8% 12.9%

Central 10.2% 19.1% 10.9% 13.5% 9.6% 19.0% 10.9% 13.4% 9.1% 18.8% 11.4% 13.6% 9.0% 18.5% 11.3% 13.5%

West 34.6% 18.6% 29.1% 26.2% 36.7% 18.3% 29.2% 26.3% 37.5% 18.7% 28.7% 26.2% 35.6% 18.7% 28.3% 25.8%

South 22.5% 23.6% 24.0% 23.7% 22.3% 23.7% 24.3% 24.0% 23.1% 23.8% 25.1% 24.5% 25.3% 24.2% 25.1% 24.9%

Source: RBIs, Equirus

Exhibit 36: Bandhan’s total deposit share from WB, AS, BH, JH, OR and

TR stands at 1.5%

Rs Bn FY16 FY17 FY18 FY19 FY20

HDFC Bk 3.0% 3.0% 3.1% 3.9% 4.4%

Axis Bk 3.7% 3.3% 3.3% 3.9% 4.0%

ICICI Bk 2.3% 2.2% 2.6% 3.6% 3.7%

KMB 0.3% 0.2% 0.2% 0.5% 0.6%

SBIN 28.4% 26.0% 26.0% 29.7% 29.9%

United Bank of India 6.5% 5.5% 5.0% 5.6% 5.5%

Bandhan 0.3% 0.7% 1.0% 1.3% 1.5%

PSU Bk 81.2% 69.5% 68.0% 75.7% 73.5%

Pvt Bk 10.7% 10.3% 11.3% 15.4% 18.1%

Total (Rs Bn) 13,253 17,479 19,105 18,157 19,764

Bandhan Share's 0.3% 0.7% 1.0% 1.3% 1.5%

Bandhan's share

among Pvt banks 3.2% 6.7% 8.6% 8.8% 8.6%


Exhibit 37: Bandhan’s total deposit share in WB stands at 2.9% and its

share among Pvt banks stands at 12.2%

Rs Bn FY16 FY17 FY18 FY19 FY20

HDFC Bk 4.0% 4.2% 4.5% 4.9% 5.5%

Axis Bk 5.1% 5.2% 4.8% 4.9% 5.0%

ICICI Bk 3.0% 3.2% 3.7% 4.4% 4.4%

KMB 0.2% 0.2% 0.2% 0.8% 0.9%

SBIN 24.4% 24.9% 24.6% 24.5% 24.1%

United Bank of India 10.5% 10.7% 9.6% 9.7% 9.5%

Bandhan 0.6% 1.4% 1.9% 2.4% 2.9%

PSU Bk 80.1% 78.9% 76.4% 72.6% 69.6%

Pvt Bk 14.1% 15.5% 17.5% 20.6% 23.4%

Total (Rs Bn) 5,884 6,559 7,105 7,628 8,398

Bandhan Share's 0.6% 1.4% 1.9% 2.4% 2.9%

Bandhan's share

among Pvt banks 4.0% 8.9% 10.8% 11.7% 12.2%



December 15, 2020| 19

Healthy PPoP/PAT CAGR of 17%/20% during FY20-FY23

NIMs to remain healthy amongst the peers despite product diversification

Post getting the universal banking license, Bandhan reduced its MFI product yields from 21-22% to

~18% to pass on the CoF benefit to customers but maintained spreads within the segment. While MFI

customers are not price-sensitive, this move will nudge peers to become price competitive in the future.

Post-merger with Gruh, CoF inched up – to 7.8%/6.5% in FY20/1HFY21 from 5.5% in FY19 – as

overall borrowings in the merged entity increased. On the other hand, the deposit share in overall

liabilities declined from 77% pre-merger to ~60% post-merger; however, with deposits having healthy

16% YTD growth in 1HFY21, much of the borrowings have been replaced by deposits. Further, CoF

has already started softening and we expect it to further improve as B/S liability also declines with

increasing disbursements.

Since banking operations began, NIMs (on avg. total assets) have been ranging between 8-10% due

a higher MFI share in the overall loan book. The liability side saw good deposit traction, well supported

by a healthy CASA of 30-35%, leading to a decline in CoF from 7.6% in FY17 to 5.5% in FY19.

However incrementally, we believe NIMs will decline due to a changing loan book mix; home loans

and other retail loans are likely to be priced much lower than MFI loans and have lower spreads.

Further, CoF improvement from here on will be lower than the decline in the bank’s overall yields.

Despite this change, we believe NIMs will be much ahead of banking peers. We expect FY22E/FY23E

NIMs (on avg. total assets) to be 7.3%/7.1%, and NII CAGR over FY20-FY23E to be ~20%.

Exhibit 38: CoF softening as Gruh borrowings are replaced by deposits


Exhibit 39: NIMs have moderated with an evolving business model


*AIEA – Avg interest earning assets, ATA – Avg total assets, AGL – Avg Gross

Loans

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%


Yield on IEA (%) CoF (%) Spreads (%) -RHS

6%

7%

8%

9%

10%

11%

12%

13%


NIM on AIEA (%) NIM on ATA (%) NIM on AGL (%)

While CoF improvement will be lower

than the decline in overall yields, NIMs

will be much ahead of banking peers


December 15, 2020| 20

Exhibit 40: NIM (on avg. TA) expected to soften further due to introduction of low-yield products


Operational metrics to remain in control

Bandhan follows a weekly collection model for its MFI segment; in context of the current pandemic,

the bank has resorted to door-to-door collections for which it has also hired new employees. With this

model, the bank’s opex/Avg gross loans is likely to range between 4.5-5%, in line with MFI industry

peers such as CREDAG. However, this ratio is commendable considering that Bandhan has developed

a strong deposit franchise as well. During FY20, opex/AAUM declined to 4.2%, largely led by the Gruh

merger. Our analysis indicates that Gruh had an opex/AAUM of ~70bps. With the changing loan mix

on the back of 1) incremental focus on the housing segment (loan book share of 30% by FY25E) 2)

transitioning of vintage MFI customer to monthly collection model and launch of retail products, we

expect opex/Avg. gross loans to hover around ~4% for the bank.

Bandhan plans to add 15-20% of its network every year, which includes branch network and employee

base. C/I for FY20/1HFY21 stood at ~31%/~29%, and we expect the ratio to inch-up to ~35% over

FY21-FY23. While the bank plans to actively pursue third-party products and has also tied-up with

Standard Chartered Credit in this regard, we expect fee side benefits to flow in only after some time

but opex growth to remain high.

Exhibit 41: Operational leverage helps improve branch/employee

efficiencies…


Exhibit 42: …which along with better other income avenues led to C/I

ratio improvement


9.2%9.6%

8.1%8.9%

8.5%

7.5% 7.3% 7.1%

0%

2%

4%

6%

8%

10%

12%

FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

NIM on ATA (%)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%


Employee cost/Avg AUM (%) Other Opex/Avg AUM (%)

Opex/Avg AUM (%) - RHS36.3%

35.0%32.6%

30.8%28.7%

0%

5%

10%

15%

20%

25%

30%

35%

40%


C/I ratio

Opex/AAUM to range between 4-4.5%


December 15, 2020| 21

Exhibit 43: Leveraging the branch network to roll out products by

adding segment-wise employees…


Exhibit 44: …leading to improving branch/employee level overall

business


Exhibit 45: Expect product diversification to benefit the Opex/AUM (%)


Exhibit 46: PPoP/AAUM expected to moderate on the back of expansion strategy going ahead


0

5

10

15

20

25

30

35

40

45

50

0

200

400

600

800

1,000

1,200


Branches (#) Employee/Branch (#) - LHS

0

5

10

15

20

25

30

35

0

200

400

600

800

1,000

1,200

1,400

1,600


Business/Branches (Rs Mn) Business/Employee (Rs Mn) - LHS

4.0%

5.2%

4.7% 4.7%

4.2%3.9% 3.9% 3.8%

0%

1%

2%

3%

4%

5%

6%


Opex/Avg AUM (%) - RHS

0%

2%

4%

6%

8%

10%

12%

0

25,000

50,000

75,000

100,000

FY18 FY19 FY20 FY21E FY22E FY23E

PPoP (Rs Mn) PPoP/AAUM (%)


December 15, 2020| 22

Proactive provisioning measures to smoothen the pandemic impact

Bandhan’s weekly collection model has been instrumental in helping it maintain healthy asset quality. This

allows loan officers to meet customers more often than in a monthly/fortnightly model, and aids in stronger

bond/connect with customers and therefore early realization of any ground-level updates.

Industry sees a decline in wilful defaulters

Some developments adding to the resilience of the MFI industry are:

• Post demonetization, the extensive use of credit bureaus and active data updates has aided

underwriting processes for the MFI industry in taking informed decisions.

• Lenders are paying upmost importance to adherence to policies and processes.

• Loan book is more geographically diversified

• There is higher borrower awareness towards impact on credit in case of deferment/non-

payment of the instalment

• Regulator and MFI industry bodies (such as MFIN) have become proactive about the industry

With these industry developments, lenders have seen a decline in wilful defaulters. Bandhan’s credit

cost (on avg. AUM) in FY17/FY18/FY19/FY20 stood at 0.5%/1.3%/1.9%/2.4%. Credit cost in FY20

also included COVID-related provisions of Rs ~10bn (1.7% of gross loans). Bandhan has no individual

product of higher ticket size for vintage customers. While it has higher concentration in north-east and

eastern states, including West Bengal wherein the ticket sizes are relatively higher as compared to other

states. As per the data published by Equifax and SIBDI, nine of top ten districts in terms of portfolio

outstanding are from West Bengal. However, interestingly there was not a single district from West

Bengal with the highest 90+ dpd book. A key reason for Bandhan’s healthy collections has been its

customer relationships. Its strategy to support customers in difficult times has helped it maintain healthy

asset quality and a loyal customer franchise.

Improving collection efficiency

Owing to the pandemic, Bandhan had given a blanket moratorium to its MFI customers for the months

of April and May. The collection efforts only began in June and since then the bank has experienced a

steady improvement in CE across product segments. During 2QFY21, the bank reported that 94% of

the EEB (earlier MFI) are paying monthly dues in September, leading to CE of 89%. Further, the

percentage of customers paying/CE improved to 91%/95% in October (vs. 67%/68% in Jun’20). CE

for SME/HF improved to 96%/98% in September vs. 88%/77% in July. The bank’s NBFC exposure

remained robust with a CE of 100% since Jul’20. Bandhan expects CE to continue improving MoM for

the coming months as some geography/state-level issues with respect to movement of public transport

(such as trains connecting to Calcutta) get resolved.

COVID impact to be contained given the rural/essential items associated customer profile

Bandhan has closely experienced the AP crisis, demonetization, Assam agitation and impact of floods

and cyclones; however, it has not only managed the loan book quality effectively but also bounced back

strongly. While COVID is a once-in-a-century event, we believe proactive measures by the regulator has

helped the economy revive faster than expected. These measures include: (a) providing adequate liquidity,

(2) giving moratorium to customers, and (3) remaining open about more measures if required.

We expect the impact of COVID for the bank to be contained on the back of its rural customer base

(75% of total customers) involved in relatively resilient business categories (~80% of customers not

impacted due to lockdowns). Over the last three quarters, the bank has created a provision buffer of

Rs ~21bn (COVID buffer of ~Rs 17bn, standard asset provision buffer of Rs ~3.1bn). At the book

level, the bank believes COVID related credit cost would be ~3.5%. Having roots from the MFI

background, the bank proactively provides for slippages/GNPAs. As on Sep’20, the bank had GNPA/

NNPA of 1.2%/0.4%. Bandhan’s PCR stands at 70%. In the MFI segment, the bank has a policy of

writing-off a 180dpd account.

Post-merger with Gruh, we believe implementation of the bank’s strategy to separately have individual

loan products for vintage customers and actively pursue retail products (gold, personal loans, 2W-

Wheeler and Vehicle loans) will be the key. While we appreciate the new professionals onboarded to

drive new business segments, the underwriting practices and asset quality for these segments need to

be monitored. We expect the bank’s credit cost in FY21E/FY22E/FY23E to be at 2.5%/1.4%/1.3%.


December 15, 2020| 23

Exhibit 47: Remarkable improvement in number of paying customers in

the EEB segment (MFI & individual MFI loans)


Exhibit 48: Commercial banking segments (SME & NBFC) collections

continued to report MoM improvements


Exhibit 49: Housing CE was least impacted and improved to 98% in the Sept’20


Exhibit 50: Healthy recoveries despite contained gross slippages


Exhibit 51: PCR improves to ~70%


99% 99% 98%

75%

95%

0%

20%

40%

60%

80%

100%

120%

2QFY20 3QFY20 4QFY20 1QFY21 2QFY21

No. of EEB customers paying (%)

84%

88%

92%

96%

100%

104%

Jul'20 Aug'20 Sept'20

SME (%) NBFC (%) CB total (%)

77%

85%

98%

75%

80%

85%

90%

95%

100%

Jul'20 Aug'20 Sept'20

Housing Finance (CE - %)

0.7% 1.5% 2.2% 2.0%

25.0%

15.9%

10.7%

25.9%

0%

5%

10%

15%

20%

25%

30%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

FY17 FY18 FY19 FY20

Gross Slippage (%)

Reductions (excl. write-off) opening GNPA (RHS)

0.2%

0.5%

1.3%

2.0%

1.5%

1.2%

0.1%

0.4%

0.6% 0.6% 0.6%0.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%


GNPA (%) NNPA (%) PCR (%) - RHS


December 15, 2020| 24

Exhibit 52: Expect credit cost to soften going ahead


Clear visibility on RoEs sustaining ~23% in FY22E/FY23E

Maintaining healthy profitability along with robust growth has been a key differentiator for the bank

since its inception. Over the last five years, Bandhan has ramped up its deposit franchise, entered

newer geographies, merged with Gruh and now faced the COVID impact. Despite all these

developments, the bank has always maintained a healthy ROA/RoE profile. It delivered PPoP/PAT

CAGR of 85%/82% over FY16-FY20.

With the new strategy of venturing into retail products and expanding the housing product (via separate

products for different income groups), we expect ROAs to decline to 3.5%/3.4% in FY22E/FY23E.

However, we expect RoEs to be ~23% for FY22E/FY23E on rising leverage levels for the bank.

Exhibit 53: Robust NII/PPoP/PAT CAGR of 61%/85%/82% over FY16-FY20


0.5%

1.3%

1.9%

2.4%2.6%

1.4% 1.4%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

FY17 FY18 FY19 FY20 FY21E FY22E FY23E

Provisions/Avg AUM (%)

-10%

0%

10%

20%

30%

40%

50%

60%

70%

FY18 FY19 FY20 FY21E FY22E FY23E

NII - YoY growth (%) PPoP - YoY growth (%) PAT - YoY growth (%)

Rising leverage levels to aid RoE


December 15, 2020| 25

Exhibit 54: Peer comparison indicates highest RoE for Bandhan Bank

FY19 HDFCB ICICIBC SBIN IIB RBK BANDHAN UJJIVAN SFB EQUITAS SFB CREDAG

Interest Income 8.6% 6.9% 6.8% 8.9% 8.9% 13.2% 15.8% 14.5% 18.7%

Interest Expense 4.4% 3.9% 4.3% 5.4% 5.3% 4.3% 6.2% 6.6% 6.7%

NII 4.2% 2.9% 2.5% 3.5% 3.6% 8.9% 9.5% 7.9% 12.0%

Other Income 1.5% 1.6% 1.0% 2.3% 2.0% 2.1% 1.8% 1.9% 1.9%

Total Income 5.7% 4.5% 3.5% 5.8% 5.6% 11.0% 11.3% 9.9% 13.9%

Opex 2.3% 2.0% 2.0% 2.6% 2.9% 3.6% 8.6% 6.9% 4.7%

-of Which Employee 0.7% 0.7% 1.2% 0.7% 0.9% 2.0% 4.5% 3.8% 3.0%

PPOP 3.5% 2.5% 1.6% 3.2% 2.7% 7.4% 2.7% 2.9% 9.2%

Provisions 0.7% 2.1% 1.5% 1.2% 0.9% 1.5% 0.3% 0.7% 1.2%

PAT 1.8% 0.4% 0.0% 1.3% 1.2% 3.9% 1.7% 1.4% 5.2%

Leverage 9.0 8.6 16.2 9.9 10.0 4.9 6.7 6.8 3.3

RoE 16.6% 3.2% 0.4% 13.1% 12.2% 19.0% 11.5% 9.8% 16.9%


Exhibit 55: Bandhan has one of the lowest leverage levels among banks, and should likely lead to RoE expansion ahead despite moderation in RoAs

FY20 HDFCB ICICIBC SBIN IIB RBK BANDHAN UJJIVAN SFB EQUITAS SFB CREDAG

Interest Income 8.3% 7.3% 6.7% 9.8% 10.1% 14.7% 16.8% 15.1% 17.7%

Interest Expense 4.2% 4.0% 4.2% 5.7% 5.8% 6.2% 6.7% 6.6% 6.4%

NII 4.0% 3.2% 2.6% 4.1% 4.3% 8.5% 10.2% 8.5% 11.3%

Other Income 1.7% 1.6% 1.2% 2.4% 2.3% 2.1% 2.0% 1.6% 1.0%

Total Income 5.7% 4.8% 3.8% 6.5% 6.5% 10.6% 12.2% 10.1% 12.3%

Opex 2.2% 2.1% 2.0% 2.8% 3.3% 3.3% 8.2% 6.7% 4.7%

-of Which Employee 0.7% 0.8% 1.2% 1.0% 0.9% 1.8% 4.5% 4.0% 2.9%

PPOP 3.5% 2.7% 1.8% 3.7% 3.2% 7.4% 4.0% 3.4% 7.7%

Provisions 0.9% 1.4% 1.1% 1.6% 2.4% 1.9% 1.1% 1.4% 2.7%

PAT 1.9% 0.8% 0.4% 1.5% 0.6% 4.1% 2.2% 1.4% 3.6%

Leverage 8.7 9.2 16.9 9.5 9.3 5.6 6.4 7.0 3.6

RoE 16.4% 7.1% 6.4% 14.5% 5.6% 22.9% 14.0% 9.7% 13.0%


Exhibit 56: RoAs expected to contract, but RoEs to remain healthy at ~23%


4.4%

3.6%3.9%

4.1%

2.9%

3.5% 3.4%28.6%

19.5% 19.0%

22.9%

18.2%

22.8% 22.8%

0%

5%

10%

15%

20%

25%

30%

35%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

FY17 FY18 FY19 FY20 FY21E FY22E FY23E

RoAA (%) RoAE (%) - RHS


December 15, 2020| 26

Valuation & view

Bandhan has emerged as one of the fastest growing franchise (Gross Loans/Deposit CAGR of

~43%/~54% over FY16-1HFY21) with a track-record of managing healthy asset quality despite

operating in the most riskier customer profile segment. Having transitioned itself into an universal bank,

it has not only diversified its product bouquet (MFI, SME and HL & LAP post Gruh merger) but has also

garnered healthy deposit franchise with CASA ratio of ~38%.

In the recent past, the bank has gone through two major events – Demonetization and Covid-19

pandemic – post getting the banking license and so far both seem to have been managed well (credit

cost for FY17/FY18/FY19/FY20 at 0.6%/1.6%/2.1%/2.6% respectively). Further, states such as Assam

and Odisha have had their own issues and despite that Bandhan has displayed sturdy performance on

asset quality.

The management of the bank has delivered on overall growth of the franchise, it has been well

supported by healthy profitability with FY20 RoA/RoE of 4.1%/22.9% respectively.

With strategy to be a one stop solution for its customers, the bank has forayed into insurance products,

investment/mutual fund product and credit card partnership (with Standard Chartered bank). From the

income perspective, these avenues would boost up the fee income for the bank along with extending

the product bouquet. With a customer base of ~20mn and having highest market share in the east

and north east, we believe the cross-sell opportunity for the bank is huge.

We believe the bank’s ability to venture in new segment/geographies has been on the back of its

proactiveness to onboard professionals to drive those segments. In the last two years, the bank has

built a core team of experienced professionals and continuously onboards segment specialists while

retaining the existing core team members.

While we acknowledge that the bank’s strategy to have non-MFI segments contributing 55-60% of the

book by FY25E would require 1) steady approach on new product launches, 2) cautious growth in

newer products 3) proactive efforts on underwriting practices for non-MFI products and 4) retention of

the core team, we believe the bank is well equipped (with professional expertise, network and customer

franchise) to change its loan mix and capitalise on the cross-sell opportunities.

We expect Gross/net advances CAGR of ~24/23% over FY20-FY23E with credit cost (on gross loans)

of FY21/FY22 of 1.4%/1.4%. On the deposit franchise, we expect CAGR of 25% over FY20-FY23E.

With the changing loan mix, we expect the RoA to contract to 3.5%/3.4% in FY22E/FY23E. However,

the RoE would remain ~23% in FY22E/FY23E each. We believe the operational metrics and return

ratios are best in the industry. We initiate coverage on BANDHAN with a LONG rating and Mar’22 TP

of Rs 490, valuing the company at 3.3x on FY23 ABV of Rs 149.

Exhibit 57: Gross loans CAGR expected to be 24% over FY20-FY23


Exhibit 58: SD valuation chart


0%

10%

20%

30%

40%

50%

60%

70%

0

200

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800

1,000

1,200

1,400

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Gross AUM (Rs Bn) Net Advances (Rs Bn)

Gross AUM - YoY (%) - RHS

0

2

4

6

8

10

Mar

-18

May

-18

Jun

-18

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Au

g-1

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r-1

9M

ay-1

9Ju

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g-2

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p-2

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P/ABV (x) Avg +1 SD Avg +2 SD

Avg since IPO Avg -1 SD Avg -2 SD


December 15, 2020| 27

Management Profile

Exhibit 59: Building an experienced core team brick by brick to drive the next growth phase

Name Designation Brief

Chandra Shekhar

Ghosh MD & CEO

• Founder, Managing Director and CEO with a total experience of ~27 years in the field of

microfinance and development. He founded Bandhan in 2001.

• He holds a masters’ degree in science (statistics) from the Dhaka University

Sudhin Choksey Executive Director

(Designate)

• Mr. Choksey has ~35 years of experience within the Financial industry.

• Prior to his current role, he was the Managing director at GRUH Finance Limited which got

merged with Bandhan Bank in FY19.

• He is a Chartered Accountant and also has B.Com degree from University of Mumbai

Deepankar Bose Head, Corporate Centre

• Mr. Bose has ~36 years of experience in banking industry.

• Prior to joining Bandhan, he served as the Chief General Manager and Head of Wealth

management business at SBI

Sanjeev Naryani Head—Business

• Mr. Naryani has ~32 years of experience in banking industry

• Prior to joining Bandhan, he worked as Chief General Manager and Head of Real Estate and

Housing Business units at SBI

Sunil Samdani Chief Financial Officer

• Mr. Samdani has ~17 years of experience in the financial industry.

• Prior to joining Bandhan, he served as head of business analytics and strategy at Development

Credit Bank and as CFO at Karvy Financial Services Ltd.

• He is a Chartered Accountant.

Kumar Ashish Head – Emerging Entrepreneurs

Business

• Mr. Ashish has 26+ years of extensive experience in the field of banking and finance

• Prior to joining Bandhan, he served as the North Zone Head of ICICI bank and as Group

Director at Airtel Money

• He is an alumnus of Welingkar Institute of Management, Mumbai.

Biswajit Das Chief Risk Officer

• Mr. Biswajit has ~28 years of experience in the banking industry

• Prior to joining Bandhan, he was associate with ICICI Bank and PNB Bank.

• He is an alumnus of IIM, Calcutta

Siddhartha Sanyal Chief Economist &

Head Research

• Mr. Sanyal has over 20 years of experience in the field of Macro Economics

• Prior to joining Bandhan, he was associated with Barclays Bank PLC, Edelweiss Capital and

RBI.

• He is a CFA and holds MA in Economics from Jawaharlal Nehru University

Nand Kumar Singh Head, Banking Operations &

Customer Services

• Mr. Nand Kumar has over 27 years of experience in banking industry.

• Prior to joining Bandhan, he was associated with Axis Bank and SBI.

• He is an MBA from IMT, Ghaziabad

Arvind Kanagasabai Head, Treasury • Mr. Kanagasabai has over three decades of experience at PSU bank

• Prior to joining Bandhan, he served as the CFO at SBI DHFL limited



December 15, 2020| 28

Company Snapshot

How we differ from consensus

Particular (Rs Mn)

Equirus Consensus % Diff Comment

Total Income

FY21 91,329 96,602 -5.5%

We expect the consensus to

get revised.

FY22 111,279 113,673 -2.1%

PAT

FY21 29,840 31,526 -5.3%

FY22 44,156 45,018 -1.9%

BVPS

FY21 109 112 -2.4%

FY22 131 136 -3.5%

Key investment arguments:

• Largest MFI lender with proven track-record to absorb multiple sectoral events

• Product extension (retail and Home loans) to aid overall business growth and engagements

• Rural centric borrower base (75-80% of total borrowers) to aid in early revival of growth

• Delivered strong deposit CAGR of 54% over FY16-1HFY21. Opportunity to leverage the

branch network to ramp-up deposit franchise.

• Expect credit cost to moderated in FY22E/FY23E

• ROAs expected to moderate to 3.5%/3.4% in FY22E/FY23E on the back of product

diversification. RoEs to remain best-in the industry at ~23%.

Key Estimates

Key Assumptions FY19 FY20 FY21E FY22E FY22E

NII (Rs Mn) 44,954 63,239 76,014 90,945 109,294

PPoP (Rs Mn) 37,475 54,466 60,467 73,115 87,468

PAT (Rs Mn) 19,508 30,237 29,840 44,156 52,929

Advances (Rs Mn) 396,434 666,299 805,215 993,895 1,240,077

Deposit (Rs Mn) 432,316 570,815 742,060 905,313 1,104,481

NII growth (%) 48.3% 40.7% 20.2% 19.6% 20.2%

PPoP growth (%) 54.2% 45.3% 11.0% 20.9% 19.6%

PAT growth (%) 45.0% 55.0% -1.3% 48.0% 19.9%

Advances growth 33.4% 68.1% 20.8% 23.4% 24.8%

Deposit growth (%) 27.6% 32.0% 30.0% 22.0% 22.0%

Credit Cost on Gross Loans(%) 1.9% 2.4% 2.6% 1.4% 1.4%

Key risks:

• Significant uptick in rural NPAs

• High loan book concentration in the East and North-Eastern states.

• Being in the microfinance industry, business model is exposed to political uncertainty, socio-

economic events and natural calamities

• Implementation of strategy/processes for venturing into newer segments would be key

Company Description:

Bandhan Bank is a commercial bank focused towards serving the underbanked and underpenetrated

markets in India. Having incorporated as a microfinance lender, Bandhan got the universal banking

license in Aug’15. The bank currently offers a variety of asset and liability products and services

designed for micro banking and general banking. The bank amalgamated with Gruh Finance in

Dec’19. As on Sept’20, the bank has net advances/deposit base of Rs 773.1bn/Rs 661.3bn

respectively. The bank has a network of 1,045 branches, 3656 banking units and 487 ATMs spread

across 34 states/UTs. Bandhan Financial Holdings, promoter of the bank, holds 40% stake in the bank.


December 15, 2020| 29

Equirus BFSI coverage universe

Company Reco. CMP

Mkt

Cap

Rs. Bn.

Price

Target

Target

Date

P/E P/ABV RoE RoA

FY20A FY21E FY22E FY20A FY21E FY22E FY20A FY21E FY22E FY20A FY21E FY22E

Banks

Axis Bank LONG 607 1,858 640 Sep/21 105.3 21.7 14.5 2.34 2.15 1.85 0.2% 0.9% 1.2% 2.1% 9.1% 11.7%

Bandhan Bank LONG 412 664 490 Mar/22 21.9 22.2 15.0 4.48 4.04 3.28 4.1% 2.9% 3.5% 22.9% 18.2% 22.8%

City Union Bank LONG 187 138 180 Sep/21 28.9 23.9 19.3 3.05 3.04 2.51 1.0% 1.1% 1.3% 9.4% 10.4% 11.6%

DCB Bank LONG 123 38 105 Sep/21 11.3 16.0 9.1 1.32 1.29 1.18 0.9% 0.6% 1.1% 10.3% 6.7% 10.9%

HDFC Bank ADD 1,391 7,629 1420 Mar/22 28.1 24.8 20.7 4.41 3.89 3.38 1.9% 1.8% 1.9% 16.4% 16.0% 16.6%

ICICI Bank LONG 518 3,571 600 Sep/21 33.5 22.2 14.9 2.83 2.33 1.98 0.8% 1.1% 1.5% 7.1% 9.8% 12.4%

IndusInd Bank REDUCE 927 701 600 Sep/21 14.4 20.4 12.3 1.98 1.77 1.57 1.5% 1.1% 1.6% 14.5% 9.0% 12.7%

Karur Vysya Bank LONG 47 38 64 Mar/22 16.0 8.9 4.4 0.78 0.76 0.68 0.3% 0.6% 1.1% 3.6% 6.2% 11.5%

RBL Bank LONG 237 142 250 Mar/22 23.8 20.6 12.0 1.28 1.26 1.16 0.6% 0.7% 1.1% 5.6% 5.9% 8.8%

SBI Bank LONG 271 2,415 305 Sep/21 16.7 14.3 9.2 1.58 1.41 1.27 0.4% 0.4% 0.6% 6.4% 7.1% 10.2%

Small Finance

Banks

AU Bank LONG 923 281 900 Sep/21 41.6 30.4 34.0 6.75 5.63 4.89 1.8% 2.1% 1.6% 17.9% 18.8% 14.2%

Ujjivan SFB ADD 39 67 40 Mar/21 19.3 49.0 12.8 2.13 2.32 1.87 2.2% 0.7% 2.3% 14.0% 4.4% 15.5%

MFIs

Credit Access

Gramin LONG 781 121 800 Sep/21 34.3 44.7 17.5 4.27 3.25 2.68 3.6% 2.0% 4.3% 13.0% 8.1% 17.0%

Spandana Spoorthy LONG 743 48 940 Sep/21 13.6 16.7 8.3 1.82 1.70 1.38 6.5% 4.2% 6.7% 15.6% 10.3% 18.0%

HFCs

Aavas Finance REDUCE 1,662 130 1290 Sep/21 52.1 53.4 44.6 6.26 5.65 5.01 3.8% 2.9% 2.9% 12.7% 11.0% 11.7%

Canfin Homes LONG 485 65 525 Sep/21 17.2 14.8 12.9 3.17 2.74 2.24 1.9% 2.0% 2.1% 19.1% 18.5% 17.8%

Vehicle

Financiers

Cholamandalam ADD 377 309 285 Sep/21 29.4 22.4 17.9 4.48 4.30 3.38 1.7% 2.0% 2.3% 14.7% 15.7% 17.0%

Magma LONG 42 11 60 Sep/21 NM 10.8 5.8 0.52 0.56 0.50 0.0% 0.7% 1.3% -0.3% 3.8% 6.8%

Shriram Transport ADD 1,092 277 720 Sep/21 9.9 16.9 9.5 2.06 1.87 1.60 2.3% 1.3% 2.2% 14.8% 7.6% 11.9%

Diversified NBFCs

LT Finance Hold LONG 94 189 95 Sep/21 12.2 19.3 8.9 1.49 1.58 1.31 1.4% 0.9% 1.9% 11.0% 6.5% 13.1%

PFC LONG 121 319 155 Mar/22 5.6 4.4 3.6 1.00 0.90 0.72 1.6% 1.9% 2.1% 12.8% 15.4% 16.7%

REC LONG 142 280 170 Mar/22 3.9 3.7 3.1 1.15 1.08 0.78 2.2% 2.1% 2.2% 20.9% 20.2% 20.8%

Price to earning chart Price to book chart

Source: Company, Equirus Research Source: Company, Equirus Research

+1δ

Avg

-1δ

0

10

20

30

40

50

60

Mar-18 Mar-20

+1δ

Avg

-1δ

0.0

2.0

4.0

6.0

8.0

10.0

Mar-18 Mar-20


December 15, 2020| 30

Key Financials

Quarterly performance

Y/E Mar (Rs mn) 1QFY20A 2QFY20A 3QFY20A 4QFY20A 1QFY21A 2QFY21A 3QFY21E 4QFY21E

Net interest income 15,746 15,290 15,403 16,800 18,115 19,231 19,270 19,398

Other income 3,310 3,603 3,577 5,002 3,868 3,818 3,739 3,890

Total income 19,056 18,893 18,980 21,802 21,983 23,049 23,009 23,288

Operating expenses 5,505 5,824 6,341 6,595 6,141 6,773 7,900 10,047

Employee Expenses 3,318 3,327 3,405 3,621 3,894 4,148 4,355 4,691

Other Operating Expenses 2,187 2,497 2,936 2,975 2,247 2,626 3,545 5,356

PPOP 13,551 13,069 12,639 15,207 15,842 16,275 15,110 13,240

Provisions 1,254 1,455 2,949 8,274 8,491 3,945 4,260 3,906

Tax 4,261 1,896 2,380 1,760 1,853 3,130 2,729 2,315

Net Profit 8,036 9,718 7,310 5,173 5,498 9,200 8,121 7,020

Balance sheet (Rs Mn)

Deposits 491,952 549,080 570,815 606,100 661,277 700,954 742,060

Advances 597,859 606,010 666,300 697,490 733,067 769,721 805,215

Investment 139,644 139,820 153,518 161,820 222,849 227,306 228,510

Gross NPL (Rs mn) 10,197 10,642 11,820 9,928 10,067 8,740 15,366 23,181

Net NPL (Rs mn) 3,475 3,369 4,914 3,894 3,358 2,625 4,992 11,614

% Growth

Net interest income (NII) 41.9 37.0 33.6 15.0 25.8 25.1 15.5

Other income 56.3 52.8 29.0 16.8 6.0 4.5 (22.2)

Total income 44.5 39.8 32.5 15.4 22.0 21.2 6.8

Operating expenses 34.2 38.6 34.0 11.6 16.3 24.6 52.3

(Staff expenses) 42.1 33.1 34.1 17.4 24.7 27.9 29.6

(Other expenses) 25.0 45.5 33.9 2.7 5.2 20.7 80.1

Operating profit 49.5 40.4 31.9 16.9 24.5 19.6 (12.9)

Total provisions 17.2 (21.9) 439.8 577.3 171.0 44.5 (52.8)

Profit after tax 99.3 120.7 (20.5) (31.6) (5.3) 11.1 35.7

Advances 88.4 78.9 68.1 0.0 22.6 27.0 20.8

Deposits 49.3 58.5 32.0 0.0 34.4 27.7 30.0

Profitability ratios (%)

Yield on Advances 42.4 29.2 14.7 14.5 14.4 14.1 14.2 13.9

Cost of Funds 6.6 7.2 7.2 6.7 6.4 6.2 6.5 6.5

NIM 8.6 8.2 7.9 8.1 8.2 8.0 7.9 7.6

RoaA 4.2 4.8 3.5 2.4 2.3 3.6 3.1 2.6

RoaE 24.3 28.3 20.0 13.7 14.1 22.5 19.0 16.0

Asset Quality (%)

Gross NPL ratio 1.7 1.8 1.9 1.5 1.4 1.2 2.0 2.8

Net NPL ratio 0.6 0.6 0.9 0.6 0.6 0.4 0.6 1.4

Coverage ratio 65.9 68.3 58.4 60.8 66.6 70.0 67.5 49.9

Prov/Avg loans 2.5 1.9 2.0 5.2 5.0 2.2 2.3 2.0

Business & Other Ratios (%)

CASA 36.1 33.0 34.3 36.8 37.1 38.2 38.1 38.0

Cost-income ratio 28.9 30.8 33.4 30.3 27.9 29.4 34.3 43.1

Non int.inc / total income 17.4 19.1 18.8 22.9 17.6 16.6 16.3 16.7

Credit deposit ratio 0.0 121.5 110.4 116.7 115.1 110.9 109.8 108.5

CAR 27.0 25.1 24.7 27.4 26.5 25.7 NA 25.9

Tier-I 25.7 23.0 23.1 25.2 23.2 22.2 NA 24.0


December 15, 2020| 31

Income Statement

Y/E Mar (Rs mn) FY17A FY18A FY19A FY20A FY21E FY22E FY23E

Net interest income 24,035 30,322 44,954 63,239 76,014 90,945 109,294

Other income 4,114 7,062 10,630 15,492 15,314 20,334 25,038

Total income 28,149 37,384 55,585 78,731 91,329 111,279 134,332

Operating expenses 10,220 13,083 18,110 24,265 30,862 38,164 46,864

Employee Expenses 5,456 6,880 10,087 13,670 17,088 21,360 26,700

Other Operating Expenses 4,764 6,203 8,023 10,595 13,774 16,804 20,164

PPOP 17,929 24,301 37,475 54,466 60,467 73,115 87,468

Provisions 884 3,742 7,351 13,932 20,601 14,123 16,755

Tax 5,925 7,103 10,616 10,297 10,026 14,837 17,784

Net Profit 11,120 13,456 19,508 30,237 29,840 44,156 52,929

YoY Growth (%) FY17A FY18A FY19A FY20A FY21E FY22E FY23E

NII 71.6 26.2 48.3 40.7 20.2 19.6 20.2

PPOP 100.1 35.5 54.2 45.3 11.0 20.9 19.6

PAT 102.7 21.0 45.0 55.0 (1.3) 48.0 19.9

Loans 35.4 76.5 33.4 68.1 20.8 23.4 24.8

Deposits 92.2 45.8 27.6 32.0 30.0 22.0 22.0

Total Assets 53.0 46.5 27.4 62.5 22.3 23.4 22.3

Key Ratios

Profitability (%) FY17A FY18A FY19A FY20A FY21E FY22E FY23E

Avg. YoA (%) 21.3 16.4 16.5 17.9 17.0 16.5 15.0

Avg. cost of deposits (%) 7.3 5.9 5.4 6.6 6.5 6.3 6.3

NIM (%) 9.8 8.3 9.1 8.7 7.6 7.4 7.3

Cost/ Income (%) 36.3 35.0 32.6 30.8 33.8 34.3 34.9

Tax Rate (%) 34.8 34.6 35.2 25.4 25.2 25.2 25.2

CASA (%) 29.4 34.3 40.8 36.8 38.0 38.0 38.0

Credit/ deposit (%) 72.5 87.7 91.7 116.7 108.5 109.8 112.3

RWA/ Total assets 59.0 68.7 67.9 64.3 64.0 62.0 60.0

Assets Quality

GNPA (%) 0.5 1.3 2.1 1.5 2.9 1.8 1.8

NNPA (%) 0.4 0.4 0.4 0.4 1.4 0.9 1.0

PCR (%) 29.7 71.3 82.6 75.8 49.9 49.7 43.3

Slippages (%) 0.7 1.5 2.2 2.0 4.5 2.0 2.0

Total provision/ Avg. loans (%) 0.6 1.6 2.1 2.6 2.8 1.6 1.5

Capital Adequacy (%)

CRAR (%) 26.4 31.5 29.2 27.4 25.9 25.8 25.8

Tier 1 (%) 24.8 30.3 27.9 25.2 24.0 24.2 24.5

CAGR (%) 1 year 2 years 3 years 5 years

NII 40.7 44.4 38.1 50.8

PPOP 45.3 49.7 44.8 50.8

PAT 55.0 49.9 39.6 47.1

BPS ` 0.5 9.5 32.5 24.4


December 15, 2020| 32

Balance Sheet

Y/E Mar (Rs mn) FY17A FY18A FY19A FY20A FY21E FY22E FY23E

Equity 10,951 11,928 11,931 16,102 16,102 16,102 16,102

Reserve and surplus 33,513 81,891 100,087 135,852 159,866 195,283 236,560

Deposits 232,287 338,690 432,316 570,815 742,060 905,313 1,104,481

Borrowings 10,289 2,850 5,214 163,792 171,981 232,175 297,184

Other liabilities 15,320 7,741 14,870 30,617 32,147 35,362 38,898

Total Liabilities 302,361 443,101 564,417 917,178 1,122,157 1,384,235 1,693,226

Cash and balance with RBI 60,121 28,371 38,792 63,449 41,132 45,500 98,117

Balance with banks/call money 13,529 26,735 19,235 20,080 24,800 28,588 38,031

Investments 55,165 83,719 100,375 153,518 228,510 284,372 280,333

Advances 168,391 297,130 396,434 666,300 805,215 993,895 1,240,077

Fixed & other assets 5,155 7,145 9,582 13,832 22,499 31,880 36,669

Total Assets 302,361 443,101 564,417 917,178 1,122,157 1,384,235 1,693,226

Per Share Data (Rs) FY17A FY18A FY19A FY20A FY21E FY22E FY23E

EPS 10.2 11.3 16.4 18.8 18.5 27.4 32.9

BVPS 40.6 78.7 93.9 94.4 109.3 131.3 156.9

ABVPS 40.0 77.2 92.0 91.9 102.1 125.7 149.0

DPS 0.0 1.0 3.0 0.0 3.0 4.5 6.0

Valuation (x) FY17A FY18A FY19A FY20A FY21E FY22E FY23E

P/E (x) 40.6 36.5 25.2 21.9 22.2 15.0 12.5

P/B (x) 10.2 5.2 4.4 4.4 3.8 3.1 2.6

P/ABV (x) 10.3 5.3 4.5 4.5 4.0 3.3 2.8

Dividend Yield (%) 0.0 0.2 0.7 0.0 0.7 1.1 1.5

RoA (%) 4.4 3.6 3.9 4.1 2.9 3.5 3.4

RoAE (%) 28.6 19.5 19.0 22.9 18.2 22.8 22.8

RoRWA (%) 7.4 5.6 5.7 6.2 4.6 5.6 5.6

RoA Decomposition FY17A FY18A FY19A FY20A FY21E FY22E FY23E

Interest income 15.6 12.9 13.2 14.7 13.0 12.7 12.6

Interest expenses 6.0 4.7 4.3 6.2 5.5 5.5 5.5

Net interest income 9.6 8.1 8.9 8.5 7.5 7.3 7.1

Treasury income 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other income from operations 1.6 1.9 2.1 2.1 1.5 1.6 1.6

Total income 11.3 10.0 11.0 10.6 9.0 8.9 8.7

Employee expenses 2.2 1.8 2.0 1.8 1.7 1.7 1.7

Other operating expenses 1.9 1.7 1.6 1.4 1.4 1.3 1.3

Total Operating expenses 4.1 3.5 3.6 3.3 3.0 3.0 3.0

Operating Profit 7.2 6.5 7.4 7.4 5.9 5.8 5.7

Loan Loss Provisions 0.4 1.0 1.5 1.9 2.0 1.1 1.1

Tax 2.4 1.9 2.1 1.4 1.0 1.2 1.2

Net Profit 4.4 3.6 3.9 4.1 2.9 3.5 3.4

Leverage Multiplier 6.4 5.4 4.9 5.6 6.2 6.5 6.6

ROE 28.6 19.5 19.0 22.9 18.2 22.8 22.8

Source: Company, Equirus Research


December 15, 2020| 33

Rating & Coverage Definitions:

Absolute Rating

• LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion

and ATR >= 20% for rest of the companies

• ADD: ATR >= 5% but less than Ke over investment horizon

• REDUCE: ATR >= negative 10% but <5% over investment horizon

• SHORT: ATR < negative 10% over investment horizon

Relative Rating

• OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon

• BENCHMARK: likely to perform in line with the benchmark

• UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon

Investment Horizon

Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of

a calendar quarter.

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