Interview | We will touch pre-COVID levels in two quarters: Bandhan Bank

Kolkata-based lender Bandhan Bank reported a net loss of Rs 3,008 crore and accelerated provisions of Rs 5,577.92 crore as it witnessed an increase in bad loans. However, the bank feels that the loss reported for the quarter was a one-off due to the impact of COVID-19. It expects improvements in terms of collection efficiency, credit and disbursal growth and diversification into non-micro retail assets to drive a better performance in the next two quarters.

In an interaction with Moneycontrol, CS Ghosh, Managing Director and Chief Executive Officer of Bandhan Bank, and Sunil Samdani, Chief Financial Officer, talk about second-quarter developments, the asset quality outlook, the restructuring pool, developments in Assam, etc. Edited excerpts:

On the one hand, you had to manage stress in Q2, and on the other, credit demand in the market...

Ghosh: Credit demand is there and it started last month, just before the festive season, though there was a delay. But demand is there and from October, too, we are seeing a good amount of queries coming in from customers. New customers are opening accounts and the hope is that in the next two quarters we will reach pre-COVID levels from a credit disbursal point of view.

The demand is a mixed bag and smaller customers are our largest segment in the form of EEB (Emerging Entrepreneurs Business). There we can’t say anything specific to the sector but where businesses are linked to festivities and as the festival season starts, demand also picks up. We are also seeing an improvement in asset quality. In September we saw collection efficiency at 130 percent. Once the customer starts paying, that gives us the confidence to disburse too.

On the asset quality front, provisions have gone up. Is this being done on a conservative basis?

Samdani: So, we took this call as we are confident that the worst is over. We have seen delinquency provisions improve and our DPD (Days Past Due) position has improved drastically.

Yes, NPAs have gone up for technical reasons — as DPD buckets move, the NPAs go up initially. If you look at the overall overdue pool, that has come down substantially. Ten percent of our portfolio, which was overdue, is now regular, so that gives us confidence from the asset quality aspect that the worst is over. Demand is picking up, and our collection efficiency is more than 100 percent, including arrears. The improvement will continue.

We are confident of the worst being over and have assessed the maximum risk and made provisions against it.

Accordingly, we decided to make accelerated provisions. Going forward, we are much more confident and will see regular numbers on all accounts, be it asset quality, growth, provisioning, profitability, etc.

How much is the quantum of restructuring in both the frameworks? And how much do you expect to slip into NPAs?

Samdani: Our total restructuring pool outstanding as on September 30 is Rs 8,323 crore. Of this, microfinance is Rs 6,920 crore and the rest is largely housing. In framework 1.0, we only did housing, which was about Rs 625 crore. The rest of the restructuring is in framework 2.0

At the time of restructuring the amount was Rs 9,035 crore and in a matter of one quarter we have been able to bring it down by 8 percent of the restructured book.

Customers are coming and paying installments where they are not required to pay for six months. As economic conditions, mobility and ground-level activities improve, people are coming back and paying. Almost two-third of customers from the restructured pool paid us back in the second quarter.

If you look at the provisioning in the second quarter, we took accelerated provisioning in the restructuring pool too. Almost 18.5 percent of the restructured pool has already been provided.

How is the current loan mix and is there any trajectory on the optimum loan mix? Would you go slow on microfinance?

Samdani: We don’t say we will be going slow on microfinance; it’s a question of the environment. Right now we are going slow in Assam. Other than that, we think things are normal. In Assam also, we believe that in the next quarter, things should be better. What we are saying is that growth in the same segment will come on two grounds;

First, we will move mature borrowers who have good businesses to individual loans as MSMEs. Second, new customers will be added in the MFI segment, which will be an entry point. As they mature, they will be moved to the individual loan segment as MSMEs.

We are quite confident about the recovery in microfinance but at the same time, (as per) the strategy we had published last quarter, we want to diversify on two counts, products and geography.

95 percent of branches opened in the last one year in the microfinance segment are beyond our core geography of Assam and West Bengal. That’s one way to diversify.

On the product side, mature borrowers will be converted to individual borrowers and at some point will be classified as MSMEs. We have housing, MSME and retail picking up. They are on a small base but are showing growth of over 200 percent.

With product and teams in place, and as the economic environment improves, we are confident of improvement in our stated guidance on diversification.

You said you are going slow in Assam. What challenges are you seeing on the ground?

Ghosh: On the ground level, there are no disturbances seen like earlier. The typical environment is positive and in favour of lenders, and customers are returning.

Another point that is positive is that whatever the discourse during the election — asking people not to pay — the government is now continuously talking to people to pay and develop their credit quality in the credit bureau, or else future credit will not be available from lenders.

That’s strong feedback, and in around 33 percent of our customers, we have seen an increase in collection efficiency from June to September.

Overall collection efficiency there has improved from 49 percent to 82 percent. People are coming back but it will take more time compared to other states.

You have strengthened your digital and technology leadership positions in the last few months. What’s the strategy here?

Samdani: It is a key focus area for us, we have decided to spend over Rs 1,000 crore on technology over next five years and revamp our entire technology, whether on digital, loan management, loan origination, etc. We have most of it and want to be the best in class.

Any full-year guidance on growth and NPAs?

Ghosh: On NPAs, I again feel that the worst is over and a new episode has already started from September as credit demand has come in. As repayment has started improving day by day, it has shown that credit demand is simultaneously coming in.

I am not seeing anything worse happening in future. In a couple of months we will be back to normalcy, which is pre-COVID levels of collection efficiency. Subsequently, disbursement will also improve.

The next two quarters will be good for credit growth, collection efficiency and profit growth.