Bandhan Bank has been a source of joy to investors, making it the eighth most valuable bank in the country on the very day it listed on the bourses. The smallest full service bank’s fiscal year 2017-18 results will add to investor comfort.
Bandhan Bank reported a 20% growth in net profit driven by a 37% core income growth and a pristine loan book. Its advances surged by 37.4% and deposits outpaced at a rate of 45.8%. Given that Bandhan Bank in all respects is still a micro lender, the net interest margins are near the high single digits.
The management is sanguine on future growth prospects and indicated that margins would largely be around similar levels.
Investors should feel reassured that the bank is focussed on maintaining its legacy of micro lending. Micro loans still form 86% of the book and even the non-micro loans are largely an offshoot from its existing borrower base. Bandhan Bank wants to grow but not at the cost of asset quality, its head Chandra Shekhar Ghosh reiterated at a press meet after the results.
In a banking sector rife with scary bad loan ratios, Bandhan Bank’s asset quality stands out. However, if the lender’s gross bad loan ratio of 1.15% for FY18 is compared with its historic record, perhaps it can be viewed as the first visible fault line. But this shouldn’t daunt investors, because the distress is largely due to an overhang of demonetisation and the disruption caused by goods and services tax. Much depends, of course, on what happens once it leaves its familiar microfinance neighbourhood for more unfamiliar terrain.
Also refreshing is the bank’s focus on its liabilities. Building a liability book to finance the asset side is a daunting task in a country where every bank is out to woo depositors. Ghosh explained that the bank’s 500-strong branch network has one focus—to bring in deposits. The 46% growth in deposits is excellent given that all other new banks including payments banks are struggling to get their act together on this.
Of course, a newly minted bank is expected to show very high percentage growth in its metrics. The fact that the stock trades at a rich multiple of over six times its estimated book value for FY19 shows that investors have priced it for perfection.
Nevertheless, in an environment where clean banks are in woefully short supply, the stock will continue to be supported.