Exclusive: Bandhan Bank chief Chandrashekhar Ghosh denies reports of loan evergreening

Bandhan Bank Managing Director and Chief Executive Officer Chandrshekhar Ghosh

Bandhan Bank Managing Director and Chief Executive Officer (MD&CEO) Chandrshekhar Ghosh on February 13 categorically denied reports of evergreening of loans on the lender's books and said it has never indulged in such practices.

The Kolkata-based bank offers loans to its microloan customers only when the earlier loan is paid back in full, Ghosh said. "If you look at Bandhan's lending pratice for the last 23 years, we have been giving single loans per borrowers. The pratice is until the first loan is not closed, they are not eligible to get the second loan. That means, there is no chance of evergreening," he said in an exclusive interview to Moneycontrol in Mumbai.

Ghosh's comments assume significance in the wake of media reports that the National Credit Guarantee Trustee Company (NCGTC) is conducting an audit of Rs 20,800 crore of microloan portfolio of the bank to ascertain alleged cases of evergreening and creation of fictitious accounts to claim insurance amount.

In case of bigger loans, too, the bank follows the same process of full repayment of the first loan. "So, this also cannot be called evergreening since the first loan is already closed," Ghosh pointed out. In banking parlance, evergreening of loans refers to the pratice of a bank giving a fresh loan to pay up an existing loan.

Commenting on the ongoing audit being conducted by NCGTC, Ghosh said the audit is only part of the process to verify the claims made and it shouldn't be interpreted otherwise.

Confident of getting claim amount 

Bandhan Bank on February 12 said it is confident that its claims from credit guarantee fund for micro units (CGFMU) will be settled favourably, even as the NCGTC audit was on.

The lender had taken insurance for a portfolio of Rs 20,800 crore under the CGFMU scheme and disbursed over Rs 1,950 crore under the Emergency Credit Line Guarantee Scheme (ECLGS) in FY 2020-21.

Earlier, the bank had clarified that the maximum eligible amount a bank can claim under the CGFMU insurance is 15 percent of the total insured amount. So far, it has claimed and received Rs 917 crore from the NCGTC in December 2022. After this, Bandhan made an additional claim of Rs 1,296 crore during the second quarter.

"We can make claims under CGFMU only once a year. So, after receiving the claim amount, we will make the claim for the remaining amount next year," Ghosh said.

In its clarification to the exchanges, Bandhan Bank had said that the total claimed amount so far is much lower than the maximum eligible amount. "It may also be noted that nearly 85 percent of the funds disbursed have been repaid by customers," the bank said.

With respect to the residual non-performing portfolio, the bank had made a provision of around 88 percent, Bandhan had informed stock exchanges. The recovery process from these accounts is underway and the bank has recovered more than 20 percent of the claimed and received amount of Rs 917 crore from underlying customers, it said.

The NCGTC had conducted an initial sample audit through an independent agency after the second claim. "The NCGTC has made certain observations based on the sample audit and the bank has provided clarifications for the same. Subsequently, NCGTC decided to commission a detailed audit of the claims," the bank said.

Overhang on Share Price

The stock of Bandhan Bank went sharply down by more than 7 percent to Rs 199 on February 12 but traded largely flat on February 13. The share price has gone down 12 percent in the past one month as against a 1.8 percent drop in the benchmark Sensex due to a mix of factors, including concerns on asset quality and the overhang of NCGTC audit.

This isn't the first time that Bandhan Bank has had to clarify on the NCGTC audit. Last month, too, it had issued a similar clarification, saying the NCGTC has decided to conduct a detailed audit for the CGFMU portfolio of financial year 2020-21, but had asserted that this isn’t an audit by the regulator.

No Concern on Asset Quality

Ghosh said the bank has seen improvement in the asset quality across segments. "Our asset quality has been stable in terms of fresh slippages and provisions. Over the last year, the ratios have improved," Ghosh said.

For the October-December quarter, Bandhan Bank had reported over two-fold increase in net profit to Rs 733 crore, thanks to an improvement in core income, as against Rs 291 crore posted a year ago.

The bank’s total income increased to Rs 5,210 crore in December quarter of this fiscal from Rs 4,840.94 crore last year, the bank said in a regulatory filing. The bank's net interest income rose to Rs 2,525 crore in Q3 of FY24 from Rs 2,081 crore a year back.

On the asset quality front, the bank recorded an improvement with gross non-performing assets (NPA) declining to 7 percent from 7.2 percent a year back, though net NPA increased to 2.2 percent from 1.9 percent. Provision and contingencies nearly halved to Rs 684 crore over Rs 1,541 crore in FY23.

The bank's capital adequacy ratio stood at 19.8 percent, while the collection efficiency ratio at the end of the third quarter stood at 98 percent. The bank has 6,250 outlets, including branches, ATMs and other touch points, across the country.