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Informist, Thursday, Apr. 24, 2025

By Sachi Pandey

MUMBAI – Bandhan Bank Ltd.'s microfinance portfolio continues to be the elephant in the room--persistently stressed, and still weighing heavily on its profitability. Brokerages anticipate only a modest improvement in the bank's March quarter earnings, as recovery in the high-yielding microfinance segment continues to lag.

According to estimates from 10 brokerages, the lender is seen posting a net profit of INR 4.09 billion for the March quarter, up sharply from INR 546.3 million a year ago, but down 4% sequentially. In the December quarter, Bandhan Bank's net profit had slumped around 42% on year to INR 4.26 billion due to higher provisions. In the same quarter last year, Bandhan Bank's net profit had plunged 93% due to a sharp rise in provisions. The bank's provisions had risen more than twofold to INR 17.74 billion in the last quarter of 2023-24 (Apr-Mar).

The lender is scheduled to announce its Jan-Mar earnings on Wednesday. Shares of the company have risen over 13% since it declared its earnings for the December quarter in late January. On Thursday, shares of the bank ended 0.1% higher at INR 170.73 on the National Stock Exchange.

Slippages for Jan-Mar are expected to be high as the microfinance segment continues to show stress, brokerages said. "Given the persistent MFI (microfinance) stress and lower margins as the bank transitions toward secured loans, we cut our earnings estimates by 2-19% over FY25 (2024-25)-FY27 (2026-27) estimated and trim our target price by 6.1% to INR 155 from INR 165," Emkay Global Financial Services Ltd. said. ICICI Securities sees slippages remaining above 4% on an annualised basis. In Oct-Dec, fresh slippages under review were INR 16.2 billion, higher than INR 11.10 billion in Jul-Sept.

The bank's large share of unsecured loans is likely to keep credit costs elevated. Bandhan Bank's credit cost in Oct-Dec was 4.1%, more than double the 2.0% in the previous quarter. This weakness in the MFI portfolio is also expected to weigh on the net interest margin.

The whole microfinance sector is under stress as delinquencies rise, borrowers face over-indebtedness, and loan recovery weakens. Aggressive lending, economic strain, and operational issues are driving a drop in asset quality and raising risks for lenders.

Nomura Equity Research expects a 7–13 basis point on-quarter decline in net interest margin, while ICICI Securities pegs it around 10 bps. Elara Securities (India) Pvt. Ltd. pointed out that "rising deposit cost" will further squeeze margins, especially with the current lending mix generating lower yields. The net interest margin in Oct-Dec was 6.9% compared to 7.4% a quarter ago and 7.2% a year ago.

The overall business growth is expected to be steady but not robust. Equirus Securities estimates loan and deposit growth at around 11% and 12%, respectively, while Philip Capital sees sequential assets under management growing 4.5% sequentially. "As per the provisional numbers of banks, we have observed that within private sector banks, loan growth has moderated for Bandhan Bank in FY25," Nirmal Bang Equities said in a report.

According to provisional figures released by the bank earlier this month, Bandhan Bank's loans and advances rose 10.6% on year to INR 1.38 trillion as of Mar. 31. Total deposits of the bank rose 11.8% to INR 1.51 trillion as of Mar. 31.

Analysts also flagged the importance of Bandhan Bank's new leadership under Chief Executive Officer Partha Pratim Sengupta, who took charge in November. This will be the second quarter of earnings for the bank under Sengupta, which comes at a time when the lender is struggling with severe stress in unsecured and microfinance loan portfolios. To gauge the way forward, brokerages will look for clarity on Sengupta's medium-term strategy, product focus, and roadmap for dealing with asset quality pressures in the microfinance segment.

Despite the subdued earnings expectations, most brokerages have retained 'neutral' stance on the bank's stock, as they await clear signs of recovery in asset quality and margin stability.

Following are the Jan-Mar earnings estimates for Bandhan Bank based on reports from 10 brokerages in descending order by the estimate of net profit:

End

Edited by Tanima Banerjee

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