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Bandhan Bank, which reported a nearly 80 per cent drop in net profit at ₹103 crore and around 150 basis points decline in net interest margin during the fourth quarter ended March 31, 2021, may face more pressure in the coming days due to a lower-than-expected loan growth and a further deterioration in asset quality, analysts say.
While the bank’s MD & CEO, Chandrashekhar Ghosh, expects credit growth in FY-22 to be better than that in the previous fiscal, a lot will depend on how long the second wave lasts and its impact on businesses.
Management confident
“When the first wave of the pandemic hit us, people were not really ready and there were lot of challenges. However, during the second wave, people are already aware and know how to run their business during such a pandemic. So I feel 2021-22 will be better than FY-21. We expect credit growth to pick up in the third and fourth quarter of this fiscal,” Ghosh told BusinessLine after announcing the bank’s results on Saturday.
However, analysts across brokerage firms have turned cautious on the bank’s outlook and have cut the target price.
Haitong International, for instance, has revised its target price to ₹454 (previously ₹496). “Key risks to our rating and TP are the slower-than-expected loan growth; further deterioration in asset quality on account of recent lock-downs; and changes in micro-credit regulations,” it said.
The bank’s stock opened nearly 3.36 per cent down at ₹287 on Monday on the BSE, compared with its previous close of ₹297. It was trading in a range-bound manner before closing the day at ₹296.10, marginally down by 0.3 per cent.
Collection efficiency
While the bank’s overall collection efficiency (including write-offs and NPAs) improved to 95 per cent as on March 2021, as against 92 per cent in December 2020 and 89 per cent in September 2020, there has been a 3-5 percentage points decline in collections in April due to the second wave of the pandemic. The collection efficiency in Assam was at around 83 per cent; West Bengal stood at 95 per cent; and the rest of India was at 97 per cent.
According to Motilal Oswal, the profits were impacted by higher interest reversal and elevated provisions of ₹1,594 crore, almost 93 per cent higher compared with the same period last year. Net interest income, which reflects the core income for a bank, grew marginally by around five per cent at ₹1,766 crore as it was affected by interest reversal of around ₹540 crore due to higher slippages and interest-on-interest refunds.
“There has been a marginal dip in collection efficiency in April; we need to see how it goes in May. Though the election overhang is done with, it is the second wave that is impacting the collection efficiency. The extent of drag on earnings will depend on what kind of provisioning they make,” Nitin Aggarwal, Vice President, Research-Banking Sector, Institutional Equities, Motilal Oswal Financial Services, said.
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