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Microlender Bandhan Bank Ltd has been able to collect repayments from 92% of its customers in September, the lender said in a performance update to exchanges on Wednesday.

This is a vast improvement from the 76% collection efficiency as on 30 June. The improvement has been across the board, with microfinance loans showing a collection efficiency of 89%. The bank management had said that microfinance collections may reach 90% by September. However, analysts were sceptical considering that regional curbs were making business challenging.

That said, the lender seems to be on track to achieve its pre-pandemic collection levels. But there is more cheer for investors, as it has been able to achieve a steady deposit growth as well. But here, it is not entirely an outlier. Deposits have come easy for banks amid the pandemic. A desire for safer investments during a crisis and perhaps a build-up of savings among the public were reasons for a general rise in bank deposits. Bandhan Bank has benefited from this trend.

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For Bandhan Bank, though, a rise in low-cost deposits holds big earnings on the margin front. Current account and savings account deposits showed a 56% jump year-on-year in the September quarter. This, along with the cut in savings deposit rate to 3% by the bank, may reap benefits on margins, according to analysts.

Loan growth, too, improved to 20% year-on-year for the September quarter from 18% in the June quarter. The lender has also benefited from the uptick in the rural economy. With agriculture being the only bright spot in a recession year, the bank is likely to see better growth prospects than its peers.

Nevertheless, investors will be focussing on its asset quality and, there, the outlook has turned favourable due to the improvement in collection efficiencies. “We expect loss given default to remain lower versus peers given Bandhan’s strong market share and higher unique customer base. Nevertheless, we estimate a credit cost of 2.7% for FY21, of which 1.2% has already been recorded in Q1FY21," Motilal Oswal Financial Services analysts wrote in a note.

Analysts said the improved metrics show Bandhan Bank is an early beneficiary of the lifting of the stringent lockdown restrictions. But it remains to be seen whether this will sustain in the long run.

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