Bandhan Bank Q1 net profit up 35%

Bandhan Bank’s stressed assets at the end of June almost doubled on a sequential basis, as loan waivers in Uttar Pradesh and Maharashtra triggered defaults in other states like Madhya Pradesh and Haryana—where borrowers thought they could skip payments, the bank said on Thursday.

Announcing the bank’s June quarter financial performance, in Kolkata, managing director and chief executive officer Chandra Shekhar Ghosh said net profit jumped 35% year-on-year to Rs327 crore, thanks to business expansion.

Net interest income, or interest earned on advances minus interest paid on deposits, at Rs743 crore, was up 38% over the same period a year ago. The bank’s gross non-performing assets (NPAs) rose to Rs175 crore, or 0.82% of its loan book, from Rs86 crore at the end of March. Three states—Maharashtra, Uttar Pradesh and Madhya Pradesh—account for 75% of these NPAs. A section of borrowers in these states had defaulted after they were led to believe that they could get away without repaying their loans, Ghosh said. Loans that have turned sticky may not qualify for a waiver as Bandhan Bank does not normally advance loans for farming, said Ghosh.

Still, people pursuing “allied activities” were told that they too didn’t have to repay their loans, and this, in turn, led to the surge in NPAs, according to Ghosh. But the problem appears to have been contained, he added.

On the back of healthy growth in deposits, Bandhan Bank has started to make loans to small and medium enterprises (SME), diversifying from its core business of making tiny working capital loans to individual entrepreneurs.

Ghosh said outstanding loans of up to Rs10 lakh each given to SMEs stood at Rs1,020 crore, and loans exceeding Rs10 lakh totalled Rs659 crore at the end of June. Still, 90% of Bandhan Bank’s total outstanding loans at Rs21,389 crore was invested in its erstwhile microfinance business.

Bandhan Bank’s small business loans of Rs1-10 lakh, for which the lender does not demand any security or collateral from the borrower, has been found to have “huge demand”, said Ghosh. Alongside, the bank has expanded its retail product offerings by adding loans for affordable housing capped at Rs15 lakh each, he said.The bank’s deposits have expanded 51% year-on-year to Rs22,439 crore at the end of June. Cost of deposits has over the past year come down from 8.22% to 7.04%. Bandhan Bank still has around Rs775 crore of loans taken from other financial institutions when it was a microfinance institution. The bank will complete the repayment of these loans by March 2018, Ghosh added.

Having established a robust network of 840 branches and 2,444 doorstep service centres in 33 states and union territories, Bandhan Bank has introduced differential pricing of microfinance loans.

Customers who visit bank branches to repay their loans are being offered credit at 16%, while borrowers whose repayments are still being collected from their homes are being charged 18.5%.