Exclusive | No chance of evergreening, NCGTC audit procedural, says Bandhan Bank MD&CEO

Bandhan Bank MD Chandra Shekhar Ghosh

Kolkata-based Bandhan Bank has been in the news with National Credit Guarantee Trustee Company Ltd (NCGTC) carrying out a forensic audit of its books over suspected evergreening of a certain category of microloans.

The audit was ordered after the lender submitted an insurance claim under the Credit Guarantee Fund for Micro Units (CGFMU).

In an interview to Moneycontrol on February 13, Bandhan Bank managing director and chief executive officer (MD&CEO) Chandra Shekhar Ghosh said there is no chance of evergreening, as the bank doesn’t give a second loan to a customer until the first one is paid off. Edited excerpts:

How do you respond to the charges of evergreening of loans?

If you look at Bandhan's microcredit practices for the last 23 years, we have been giving a single loan per borrower. The practice is until the first loan is closed, borrowers are not eligible for a second loan, which means there is no chance of evergreening.

What were the observations of NCGTC in the sample audit?

They were asking for more data and more clarifications. They were asking for more data about customers. ‘What is the previous data? What is the previous history of this borrower’ and so on? But when they saw that the initial sample was not enough because the amount was big, they decided on a full audit.

So, you're saying there is no issue of evergreening.

Very correct. We haven’t changed our micro-credit lending practices in Bandhan’s last 23 years of operations. We have not done anything different this time regarding insurance coverage with respect to the process of giving loans, etc. We are giving credit to the customer in the same way.

Do you mean the same process in terms of verification and assessing creditworthiness, etc?

Yes. We are willing to assist a micro-credit customer even if the person is not able to repay temporarily because of some problems in the family such as an unexpected illness because of which they aren’t able to give one or two instalments. But we collect this money eventually. We understand the customer.

Sometimes even for a good customer who has paid 100 percent we reject their loan request because through group meetings, we know the pulse of the customer, how they utilise the money, how they repay, etc.

But we don’t reject a loan request of the NPA and DPD (delayed payment dues) customers if there is a genuine reason. Also, we have learnt from the pandemic period.

So, we are taking this very strong approach with respect to the credit underwriting process to make it better.

Will you be claiming the remaining Rs 893 under CGFMU in FY25?

Yes, as per the rule, you are eligible to apply only after six months a loan turns NPA. Second, you cannot apply twice a year. So, we already applied for Rs1,290 crore this year and whatever the balance amount, if not recovered this year, we will discuss the amount the next year.

So, what is the feedback you're getting on the NCGTC audit? How long will the audit take?

There's been no indication from their end on how long the process will take. It's mentioned in the RFP only but they have not spoken to us.

Is there any communication from the RBI on the audit?

No.

But why such a detailed audit?

This is procedural, as per insurance rules. We have paid the insurance premium, they should check the facts if there is a claim. This is the way insurance companies like to do it.

For example, if there is a life insurance, the life insurance company will first check if there is a claim whether the death happened or not.

In the same way, NCGTC, as an insurer, would like to check the details of the claim through a third-party audit. So, in that process, they say these are the things we need to clarify.

What is your assessment of asset quality?

If you see our NPAs from the Rs 59,000 crore microcredit book (both growth and individual loans), the NPA ratio has come down to 0.11 percent from around 2 percent last year. It clearly means that we are showing good improvement and future NPAs are kind of arrested. So, overall, the asset quality is very good. This basically shows future improvement in our NPAs.

How’s the SMA (special mention accounts) book doing?

There is an improvement in the DPD portfolio. DPD in microcredit portfolio has reduced by 1 percent from the first quarter to the second quarter. It was 5.5 percent, which came down to 4.4 percent, and again this quarter, it has come down from 4.4 percent to 3.4 percent. That means, quarter-on-quarter, my DPD book has come down… So, our total SMA loan book is 3.4 percent as of the December quarter. It clearly shows drastic improvement in my books. (SMA loans refers to loans where repayments are due for different interval. A loan become NPA if there is no repayment for a period of 90 days).

How have loan recoveries been in the recent quarters?

In my first, second and third quarters, fresh slippages were around Rs 1,300 crore, my recoveries are around Rs 400 crore. As a result, my Net NPA increased Rs 900 crore every quarter. Even my credit cost is hovering around 2.5 percent for the last quarters. My provision for each quarter is around Rs 600 crore. These numbers show stability.

This gives us comfort that in future our asset quality will only improve. The fourth quarter is historically one of our best quarters.

What is the status of the promoter holding?

Promoter holding is now slightly less than 40 percent. So, promoters are reducing as per the RBI directives. It was earlier 61 percent and now it is below 40 percent… We have to further reduce it to 26 percent by 2030. If you see, we still have a long time, so I am currently not able to inform you about anything. First, we'd like to focus on our business.

What’s your take on the Paytm issue? Is there something fundamentally wrong with the payments bank model?

Frankly speaking, I am not well versed with the payments bank model and how they operate. So, I am not in a position to comments on that.

Will Bandhan partner with Paytm?

We have no such plans. Bandhan Bank is a retail-focused bank with a customer base of around 3.26 crore. We are not in much need to source customers from other entities. Also, if you see, 70 percent of these customers are rural and semi-urban. Our banking outlet presence is also on the same lines. Future business growth is likely to come from rural. We are looking to tap into that opportunity.

What is the vision for physical expansion?

I will give some data on that. We have started our journey from the east, however, today we have more than 6,250 banking outlets, out of which only 46 percent are in the Eastern region and the remaining 54 percent are in areas other than the east. We are diversified and will further do so.

What is the percentage of microcredit of the total book and where do you want to take it?

The group loan portfolio is 34 percent of the total portfolio and if you include both (group and individual loans) it is around 50 percent. Our ambition is to reduce the group loan portfolio from 34 percent to 26 percent by the financial year 2026. Again, if you include individual loans, we would like to have our portfolio in the range of 40-45 percent.

Where do you think the growth will come from?

Unless people in the rural and bottom spectrum grow, the economy cannot grow that much and is not sustainable. Our thinking is always on how we can contribute more to the rural areas. So, that is the future for our bank and that of the country’s economy.