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Bandhan Bank has witnessed hardly any impact in Tamil Nadu and Karnataka so far following the State governments’ actions to regulate microfinance loan recoveries as the bank’s microfinance loan exposures to the two Southern States are “very negligible.”
There are signs of rising stress in microloan portfolios of microfinance lenders in Tamil Nadu and Karnataka. The Karnataka government passed a bill in February to regulate the microfinance sector by penalising unregulated MFIs and lenders for their coercive loan recovery practices.
Following Karnataka, neighbouring Tamil Nadu has also introduced a bill to prevent coercive loan recovery practices. Microfinance industry experts have felt that this sort of state legislations are likely to impact credit discipline of borrowers and that could impact collections.
Although delinquencies were high in Karnataka and Tamil Nadu, overall book size for EEB segment (microfinance) was only around ₹400 crore in these two States, Bandhan Bank said during the Q4FY25 earnings conference call.
Exposures to Karnataka and Tamil Nadu are limited at around 1.1 per cent and less than 1 per cent, respectively, of the EEB book.
“In Tamil Nadu, we have less than 1 per cent as a percentage of total advances. And Karnataka is 1.1 per cent. So, both are very negligible and DPD book is also very low. The collection efficiency is around 97 per cent in these two states. So, we are not that much impacted by whatever is happening in both these states,” the bank’s MD & CEO Partha Pratim Sengupta told analysts during the earnings conference call.
Sengupta emphasised that the new regulations are not applicable for banks. “In both the states the regulations are excluded the banks. The banks are not a part of the regulations,” he added.
For the month of March, collection efficiency for EEB portfolio of the bank stood at 96 per cent and 96.5 per cent, for Tamil Nadu and Karnataka, respectively.
Bandhan Bank has reported a nearly six-fold year-on-year surge in its net profit at ₹317.90 crore for the fourth quarter last fiscal, as provisions during the period fell by nearly 30 per cent y-o-y.
The Kolkata-based bank witnessed the whopping increase in the net profit despite a 15.29 per cent y-o-y decline in its operating profit at ₹15,57.34 crore during the fourth quarter of FY25.
Overall collection efficiency for EEB loans was at 97.8 per cent for Q4FY25, slightly higher than 97.4 per cent in Q3FY25.
The lender’s gross NPA ratio rose 87 basis points y-o-y to 4.71 per cent, while net NPA ratio increased 17 bps y-o-y at 1.28 per cent in the fourth quarter of last fiscal. Fresh slippages during the Q4FY25 rose to around ₹1,744 crore from ₹1,017 crore in Q4FY24.
“Bandhan’s Q4 operating profit at Rs 15.7 billion (down 15 per cent y-o-y) was 12 per cent below our estimate, led by lower NII and higher opex. PAT at Rs 3.2 billion was around 50 per cent below our estimate, led by elevated credit cost. Credit cost stood at 4 per cent (vs our 2.8 per cent estimate) driven by continued stress in the MFI segment,” Nomura said in its report on the bank’s results.
ICICI Securities, in its report, said, “Post the risk-weight rollback by RBI, Tier-1 at Bandhan has jumped to 17.9 per cent, suggesting a strong capital buffer. We appreciate management’s strategy of focusing on secured products to drive growth and structurally reducing embedded risk in the business. While the bank seems well placed on the interest rate cycle with around 55 per cent higher share of fixed rate loans and around 30 per cent share of wholesale TD, continued loan mix change in favour of secured loans (around 1000 bps differential) would continue to weigh on NIM.”
On Friday, Bandhan Bank scrip ended the day at ₹161.70 apiece on BSE, down 2.38 per cent from the previous close.
Published on May 2, 2025
This article first appeared on The Hindu Business Line
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