Kolkata-based Bandhan Bank posted a strong performance in deposit acquisition, reporting impressive growth of 27% year-on-year and 7% quarter-on-quarter. Interim MD and CEO Ratan Kumar Kesh, while highlighting the bank’s performance in the July-September period, also admitted that it faced liquidity stress during the quarter.
In an interview with CNBC TV-18 on Monday, Kesh highlighted the bank’s strengthening ability to attract deposits through its extensive network of more than 1,700 branches and innovative product offerings, particularly in transaction banking.
He expressed confidence that deposit growth will outpace progress and the growth rate will be around 18%. As a result, he expects the credit deposit (CD) ratio to continue to decline and aims to keep it below 90% by year-end despite the current macroeconomic uncertainty.
In Q2 FY25, the bank achieved a 30% year-on-year increase in net profit to a total of Rs 937.4 million. Net interest income amounted to Rs 2,948 million and assets under management amounted to Rs 1,300 million.
Read the verbatim transcript of the interview.
Q: Can you tell us at this point how you are looking at the second half of the year, how credit costs will develop and how you expect non-performing loans to develop as well?
A: I would say our quarterly numbers are, in context, decent numbers. Especially when it comes to credit quality, we see a gradual increase in the DPD pool, but with fresh slippage at the odd Rs 1,100 crore, up from the odd level of Rs 90 billion. But what we see is that given the microfinance sector and microfinance continues to be a significant part of our current plans, we expect the stress to continue in the third quarter as well. It means that there is. However, given the strength and positive impact of collection efficiency in October, we believe collection efficiency should turn around by the fourth quarter.
So if you look at today, on a six-month basis, my cost of credit remains in the 1.8% range. Our credit card guidance is 1.8% to 2% and we’re staying at that for now. We believe that if the fourth quarter is positive for us and the industry, we will be able to hold out, but as we see the end of the third quarter, we will report back with more detailed information. , we are going to discuss it further.
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Q: I hear that collection efficiency has improved. Can you tell me exactly how October compared to September?
A: The collection efficiency in the second quarter is similar. In West Bengal, our largest constituent region, it remains at 99%, down only about 10 basis points from the first quarter. and a decline of 1 percentage point in the rest of India. But in the third quarter, October, we are already seeing an improvement of 50-70 basis points in the standard pool.
Of course, given the growing DPD pool at the moment, some of that will definitely pass, so we’re not isolated from the industry. Having said that, we believe we will continue to improve, and our credit cost guidance is 1.8% to 2%, and we remain within that range for now.
Q: These are just the numbers for the standard pool, but how large are they? You said it improved by 40 basis points. What are the exact numbers?
A: It is in the range of 98 plus to 99 across India. West Bengal continues to be very high, above 99. It’s also improving every week.
Q: You say credit costs are not increasing at this time given the expected stress. Provisions were also down slightly, down almost 5% year-over-year, but slightly up quarter-over-quarter. So what can guide you about expected slippage and expected stress on gross NPAs? Are there year-end numbers that you can look at now?
A: Gross NPAs have already gone up from 4.2% to 4.5%. And we think the slippage will be a little bit more in the third quarter. However, the fourth quarter and any treatment that we expect will keep us in the 3.5% to 4% range for gross NPAs by the end of the year.
Now, there’s a bit of stress about the microfinance space, and I’d like to decode it a little more specifically for our banks. You can see the overall pool that I know based on the latest graphs. On the microfinance side Bandhan Bank’s customer specific pool is around 60%, Bandhan Plus 1 is 80%, Bandhan Plus 4 and above and this is the most stressful segment for me. In our case, it’s only about 4.5%.
So given the increased stress in the industry, at some point we’re not going to be isolated, but we’re going to be affected. But given the guardrails that we’ve put in place and the steps that we’ve taken over the last 18 months or so, the industry has probably grown significantly and some of them will continue to grow. We will, but we have been growing slowly over the past few years. Although it reflects over-leverage, I think we are still better than the rest and gross NPAs. We have a few thoughts in mind. We will strive to maintain a range of 4-4.5% at the end of the year.
Q: Deposits grew significantly this quarter, up 7% quarter over quarter. What was the incremental cost of funds earned this quarter because the net interest margin decreased by 20 basis points sequentially? Also, will you continue to look at deposit growth at this level to lower interest rates?What is your overall credit-to-deposit ratio?So, is there any guidance on CD ratios by the end of FY25?
A: We have demonstrated a strong ability to attract deposits sequentially, with deposits increasing 27% and 7% sequentially. Yes, there has been some stress on liquidity, but after the core transformation, we have built over 1,700 branches and some of the products we have launched and many more have really the ability to attract deposits through franchising. . It also appears on the transaction banking side. Therefore, some of these have reopened, some of the older branches have been reinvigorated, and separate sales teams have been established. I think our ability to raise deposits will continue to improve.
Our guidance is for advances to grow at 18% plus or minus one, and deposits to grow faster than that. Therefore, the CD ratio will continue to decline. Given the overall macros, we are unable to provide guidance at this stage, but we believe we will definitely remain in the sub-90% range by the end of this year.
Q: Just one number: Net Interest Margin (NIM).
A: So the net interest margin guidance would be 7 to 7.5%.
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