Bandhan Bank is India’s largest micro finance lender with a patchy track record on collections due to geographical concentration (47%+ exposure to just two state – West Bengal & Assam) and string of disruptions in the industry which have led to spike in NPAs. Although pre-provisioning profits are adequate to cover credit costs, the return ratios have deteriorated significantly. There is great potential for micro finance and Bandhan’s growth will be above that of the general banking industry but lending standards have to improve. There is scope to expand into other segments of lending as well but progress has been slow post acquisition of GRUH. Growth in retail deposits is comforting but recent spike in NPAs and associated credit costs and interest reversals have revealed cracks in the business model, which is why we have a neutral weight rating despite good long term prospects – 06-08-2021 Price: 303.70 Rating: Neutral Weight Recommendation: Hold
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