Bandhan Bank's pre-tax profit drops 40% in Q1 on higher provisioning

Private sector lender Bandhan Bank has reported 40 per cent drop in pre-tax profit in the first quarter (Q1) of 2020-21 (FY21). This is largely due to additional provisioning made against the material impact of Covid-19 on standard assets.

Pre-tax profit of the bank in Q1FY21 stood at Rs 735 crore, compared to Rs 1,231 crore in Q1 of 2019-20 (FY20). Net profit was Rs 550 crore versus Rs 804 crore — down 32 per cent.  The operating profit of the bank was up 16.81 per cent to Rs 1,584 crore from Rs 1,356 crore in the corresponding quarter of the previous year. 

The bank made additional provisioning to the tune of Rs 750 crore due to the pandemic in the June quarter. This was over and above the Rs 690-crore additional provisioning in the March quarter. It has additional provisioning of Rs 329 crore in its microfinance portfolio, taking the total to Rs 1,769 crore. The total provisioning by the bank in the June quarter of FY21 was Rs 849 crore, compared to Rs 125 crore in Q1FY20.

“If things pan out as we have estimated, the requirement will mostly be in-line provisioning. Our estimate is that it will be a normalised credit cost,” said Sunil Samdani, chief financial officer, Bandhan Bank, on whether the bank would need to make further provisions due to Covid.

While many banks are queuing up to raise funds to shore up capital base, the management of Bandhan Bank believes it does not need to raise capital for the next three to five years. “Our capital adequacy is 27 per cent, arguably the highest in the industry. Also, we have already upfronted the Covid impact,” said Samdani.

In value terms, 24 per cent of the lender’s book is under moratorium.

“Overall bank collections improved to 76 per cent by the end of June, compared to 29 per cent in April,” said Chandra Shekhar Ghosh, managing director and chief executive officer, Bandhan Bank.

In the microfinance segment, collections have improved to 70 per cent by the first week of July as opposed to no collections in April. The mortgage segment saw 85 per cent collection. The small and medium-sized enterprises segment saw 82 per cent collection. The non-bank lending sector saw 100 per cent collection by end-June.

Net interest income of the bank in Q1FY21 rose 15 per cent to Rs 1,811 crore, compared to Rs 1,575 crore a year ago. Net interest margin of the bank stood at 8.15 per cent in Q1FY21, compared to 8.6 per cent in Q1FY20.

As far as asset quality is concerned, the lender saw its gross non-performing assets (NPAs) fall to 1.43 per cent at the end of the June quarter, against 1.7 per cent in Q1FY20 and 1.48 per cent in the fourth quarter (Q4) of FY20. Similarly, net NPAs of the bank fell to 0.48 per cent in Q1FY21.

Advances of the bank, which include off-book, on-book, and disbursal under targeted long-term repo operations, grew 17.68 per cent to Rs 74,331 crore in Q1FY21, compared to Rs 63,164 crore in Q1FY20.

The bank said disbursement for June was nearly at pre-Covid levels. It has seen considerable expansion in the MSME, mortgage, and gold loan segments.

“For banks, the first and second quarters always show tepid growth in credit offtake. A month before Durga Puja and Diwali is when the credit offtake picks up. This year, the expectation is from the third quarter. We will see some pick-up, but not in line with the previous financial year. But Q4 will fare better in credit growth,” said Ghosh.

The deposit franchise of the bank increased 35.3 per cent to Rs 60,160 crore in Q1FY21, compared to Rs 44,796 crore in Q1FY20.

It has added 210,000 new customers during the quarter, with the total customer base reaching 20.31 million. As of Q1FY21, the bank has a capital adequacy ratio at 26.45 per cent; tier I at 23.22 per cent and after taking Q1 profits, it stands at 27.29 per cent.