Q4FY21 was widely expected to a tough one for Bandhan Bank on account of the local law of Assam, where the Bank has the maximum presence.

Last year, the Assam Microfinance Institutions (Regulation of Moneylending) Bill was passed, which mandates that Micro Finance companies need to register within a period of 30 days and collect dues only at gram panchayat offices or public places. These rules are tough as it makes compliance very difficult. To add to the problem, local politicians have urged borrowers not to pay back loans, going on to spoil the credit culture in the state’s microlending industry.

This deterioration in credit culture led to Bandhan Bank as its share of Assam in MFI portfolio is around 14%. And we see that stress in Q4FY21 performance, which reported a 80% (YoY) dip in net profit at Rs.103 crore as it had to write-off Rs 1,929 crore of loans, a bulk of them in the MFI segment. Due to this write-off, it overall provisions rose to Rs.1,594 crore v/s Rs. 827 crore (YoY). At the end of the Q4, over 59% in Bandhan's book is micro loans.

Bandhan Bank also restructured over Rs 600 crore of advances, which were majorly from the home loan book. If the impact of the write-offs and NPAs is taken into account, the overall repayments for the bank stands at over 98%. The Bank is confident that the major troubles in West Bengal and Assam have subsided, with both the states showing collection performance at over 90%.

On the asset quality front, the stress is visible as Gross NPA remains high at 6.8% v/s 7.1% (QoQ) while Net NPA increased from 2.4% to 3.5%.  The provision coverage ratio fell from 66.2% to 48.5% (QoQ).

Bank’s managing director and chief executive C S Ghosh said that the Bank will suffer some reductions in repayments over the next two months because of the second wave induced localised lockdowns in many states. And the CFO said that the reverses on the overall economic climate front will not impact its loan growth in FY22 because advances growth mostly happens in the second half of a fiscal starting October every year.

The stock market’s initial reaction was a ‘sell’ and the stock went down almost 4% to Rs.286 but there, value buying emerged and the stock rose to Rs.304.70, up over 2.5%.