Bandhan Bank: Assets Under Management in North-East is low

Update on the Indian Equity Market:

The markets ended the weak on a negative note as NIFTY settled 54 points lower at 11,914. Among the sectoral indices, METALS (2.1%), MEDIA (2.0%) and AUTO (0.4%) topped the chart whereas IT (-1.9%), BANK (-0.8%) and PVT BANK (-0.7%) pared the gains. Within the index stocks, TATASTEEL (4.2%), EICHERMOT (4.1%) and ZEEL (3.1%) led the index higher whereas INFRATEL (-4.1%), INFY (-2.9%) and TCS (-2.4%) were the laggards.

Bandhan Bank:  Assets Under Management in North-East is low

Key takeaways from the interview of Mr Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank  dated 22^nd November 2019 published in LiveMint:

• Mr Ghosh started the interview with his remarks on the current situation in Assam. He said that the bank is operating in Assam for the last 13 years. Two out of 30 districts in the state are being protested by some women, backed by political groups for certain demands. 2-3% of the total loan book of the bank is from those districts.
• He stated that the protests started two weeks ago. They are demanding three things. First, to lower interest rate. The micro-finance industry is totally regulated by the Reserve Bank of India (RBI). The Apex banks cap the interest rates. The interest rate charged by Bandhan is 17.95%. This is low as compared to the cap provided by RBI.
• The second demand is to have an agreement on loan applications in the local language. On this issue, Bandhan is specific in using language for all applications.
• Third, they want the government to monitor these types of activities. He mentioned that it is a good step and is manageable.
• The micro-credit portfolio in Assam is 18% of the total loan book. The bank has experienced such kind of issues in some corners of states. He is confident that everything becomes normal in a few weeks’ time.
• Bandhan measures its growth based on the number of new customers, not on the basis of AUM. The bank has added 20% new customers compared to last year. He is confident to be able to sustain that growth.
• On being asked about diversifying in new areas, he said that the bank is already diversified. Bandhan is present in 34 states and union territories (UT) as a bank. By micro-credit, it is present in 29 states and UT.
• About GRUH merger, he said that currently, GRUH operates through 195 branches that were opened earlier. From day one, 106 out of 1,009 Bandhan branches have opened GRUH housing loan desk. In a similar way, Bank is driving the affordable housing loan to citizens in West Bengal, Bihar, Jharkhand and Assam. This will help the Bank to diversify its portfolio.

Consensus Estimate (Source: market screener website)

• The closing price of Bandhan Bank was ₹ 526/- as of 22-November-19. It traded at 5.3x/ 4.2 x/ 3.5x the consensus BV estimate for FY20E/ FY21E/ FY22E of ₹ 97.7/ 124.0/ 152.0 respectively.
• Consensus target price of ₹ 636/- implies a PB multiple of 4.2x on FY22E BV of ₹ 152.0/-.