Bandhan Bank – in a sweet spot?

Hi guys,

I would like to present my view on Bandhan bank today. Since I have recently started analyzing this bank I might miss some points and I might have some understanding gap as well.

Lets start from everything related to stress pool.

1. As we all know the reason for increase in SMA1,SMA2,NPA(DPD bucket) in FY23 was majorly because of 4660cr of restructure book coming out of moratorium and moving into the DPD bucket.
   This movement started from Q4 FY22 and it has a lag effect on provisioning or write-off. EXAMPLE- If SMA2 moves to NPA more provisioning is required and Bandhan bank has a policy to write-off NPA after 180days so write-off eats provisioning and this creates more requirement.

2. I see Q3 as the last quarter which might have some impact of the restructured pool. Q2 FY23 they had slippage of 3954cr out of this the non restructured slippage was 1200cr( For Q1 FY23 non restructured was 750cr).
   Bank did write off of 3539cr for Q2 and total provision of 1280cr. Total recovery and upgrade of 530cr for Q2 and 538cr for Q1.

3. They have already done provision of 1900cr for H1 and though they did want to give any figure but still they said for H2 as per credit cost it should be 1100cr (±200cr).

ANALYSIS

1. Now on the conversative side I can assume 1000cr of non-restructured slippage for Q3( This is between 750crQ1 and 1200crQ2) This is conservative because collection efficiency has improved in provisional figures for Q3 and Q2 has floods impact hence higher slippage for Q2.
   Now EEB restructure pool is 0 we will not have slippage form restructured pool.

   They have a seasonality in their business(H2 is better than H1 can see from previous result but don’t know the logic) so recovery should be high for Q3 but let us take 500cr of recovery and upgrade for Q3.
   Last quarter net non restructured slippage was (1200-500) 700cr taking 70% provision for this 490cr this means rest of the provision was because of write-off which is 750cr.

2. Now for Q3 assumed net slippage is 500cr so 80% provision comes out to be 400cr. To be extremely conservative let us take 70% provision form write-off of Q2 amount. This is 70% of 750cr so 530cr.(This is conservative because they cannot have write-off of 2800cr this quarter this is 55% of NPA)

3. So on the conservative side we can say 1000cr provision for this quarter(Though I have a gut feeling that this is too high).

4. Now they are receiving 950cr(100% confirmed) from CGMFU (I don’t know how does accounting happen here. Does this flow through profit or can be used for provisioning). This amount completely covers Q3 conservative provision estimates.

5. They are expecting 150cr from assam relief in Q3(But they don’t have 100% clarity here)

SUMMING UP

1. Management is saying 1300cr max provision for H2 I am assuming 1000cr for Q3 which looks like it completely gets sett off from CGMFU recovery.
2. Assam Relief 150Cr expected in Q3 and taking previous year trend it should be 500cr++ for Q4(conservative)
3. Net interest income is higher for H2 because of seasonality and recovery is also high.
4. By Q4 things get normalized.
5. 65% of advances is Fixed so having thought time with NIM they are expecting it to normalize by Q4(8%).

I don’t want to project profit for Q3 will want to wait and watch but from above post we can see provision requirement.
I love predicting price as well which I will do after Q3. I had lot more to talk but post will become too long. Any body having any question I would love to answer.

4% of portfolio at CMV of portfolio with 239 avg price.

Thankyou