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ILF&S impact: Bandhan Bank sees provisions triple, NPAs spike in Q3

Nikhat Hetavkar/Mumbai 10 Jan 19 | 07:06 PM

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Kolkata-based lender Bandhan Bank’s third quarter performance was hit by its exposure to the Infrastructure Leasing & Financial Services (IL&FS) group. The bank made a full provision of Rs 385 crore during the December quarter against its exposure to the group, as a result of which the bank saw its non performing assets (NPA) spike and provisions tripled over the year-ago quarter.

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ALSO READ: Bandhan Bank to buy mortgage provider Gruh Finance in share-swap deal

Net profit for the quarter (Q3FY19) rose 10.3 per cent to Rs 331 crore against Rs 300 crore a year ago (Q3FY18).

Net interest income (NII), the core income a bank earns by giving loans, was up 53.5 per cent to Rs 1,124 crore while other income grew 48 per cent and stood at Rs 234 crore.  

The bank’s asset quality saw a jump during the quarter on account of the IL&FS exposure being classified as NPA. The gross NPA ratio for the quarter was 2.4 per cent, against 1.17 per cent a year ago and 1.13 per cent in previous September quarter.

IndusInd Bank has also made a total of Rs 600 crore of provisions against the IL&FS account. However, the account is still standard in its books.

ALSO READ: Rs 385-crore provision for IL&FS Group caps Bandhan Bank net growth at 10%

Bandhan bank’s MD & CEO Chandra Shekhar Ghosh said that the IL&FS exposure “an experiment that he would not want to repeat and the loan was given in light of the group’s big name and high credit rating. He added that it is important to focus on individual borrower and not the rating assigned to it.  

The bank’s exposure to IL&FS sticks out in the bank’s microfinance portfolio and Ghosh said that the bank’s future strategy would be to stick to its lower value segment.

The bank’s chief financial officer Sunil Samdani said that all of the banks’ remaining loans are under 25 crore, except some loans to micro-finance institutions.

Provisions and contingencies surged over three times to Rs 377.64 crore in the quarter from Rs 122.54 crore a year ago and Rs 124.17 crore in previous quarter.

ALSO READ: 'Semi-arranged match' may not fill all gaps for Bandhan Bank

Earlier this week, Bandhan Bank’s board approved the acquisition of GRUH Finance, subject to regulatory and shareholder approvals. The merger would help Bandhan Bank achieve product and geographic diversification while improving penetration in its core customer segment, said the bank.

However, markets didn’t react positively to news of the merger and the  stocks of both entities saw a fall in stock price.  After the merger, the shareholding of Bandhan Financial Holdings in Bandhan Bank will reduce from 82.3 per cent to 61 per cent. However, the bank did not disclose a timeline or method for bringing down the stake to 40 per cent as required by the norms.

Net Interest Margin (NIM) stood at 10.5 per cent on December 2018 as against 9.6 per cent in the corresponding period of the previous year and 10.3 per cent in previous September quarter

CASA (Current Accounts-Savings Accounts) Ratio improved year-on-year to 41.4 per cent against 33.2 per cent and CASA deposits grew 70.7 per cent to Rs 14,342 crore as on December 30, 2018.

ALSO READ: Bandhan Bank buys Gruh Finance; promoter stake in bank to reduce to 61%

Advances were up 46.1 per cent at Rs 35,599 trillion on December 2018, from Rs 1.28 trillion a year ago.

Deposits were up by 20 per cent and stood at Rs 34,639 crore as on December 30, 2018.

The RBI imposed penalties on the bank after it missed the September deadline to bring the promoter entity’s (owned by Ghosh) stake, in line with bank-ownership rules. RBI froze further increases in Ghosh’s pay and withdrew the bank’s right to open new branches without approval The bank said that it has not received any further communication from the RBI regarding the matter.

The bank’s stock closed at RS 471.70 on BSE, up by 3.82 per cent from previous close.

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