BANDHAN BANK

Peer Analysis
About Bandhan Bank
Bandhan Bank Limited was incorporated on 23rd December 2014 as a wholly-owned
subsidiary of Bandhan Financial Holdings Limited. Bandhan received the in-
principle approval of the Reserve Bank of India (RBI) for setting up a universal bank
in April 2014; the banking regulator gave its final nod headquartered Bandhan is the
first bank to be set June 2015. Incidentally, Kolkata- up in eastern part of India after
Independence. Bandhan Financial Holdings Ltd. is owned by Bandhan Financial
Services Limited (BFSL), the largest micro finance organization ir public
shareholders include International Finance Corporation (IFC) FIG Investment
Company, Small Industries Development Bank of India (SIDBI), Caladium
Investment Pte. Ltd. (a Company managed by GlIC Special Investments Private
Limited) and a few individuals.

The RBI licensing norms stipulate that a new bank must have a 500 crore capital.
Bandhan Bank started with a capital base of 2,570 crore and this has been raised to
F 4,446 crore as on March 31. 2017. This translates into more than 26.34% capital
to risk weighted assets ratio or CAR for the new bank, signifying its robustness.

Journey of Bandhan Bank

Moved by the plight of poverty-stricken women in West Bengal villages, and
seeking to empower them with loans to start small businesses, Chandra Shekhar
Ghosh, 55, started a microfinance company with a tiny capital of Rs two lakhs in
2001.

Fifteen years later, Ghosh heads the Kolkata headquartered Bandhan Bank, the first
private bank founded post-Independence in eastern India. This bank, with a
whopping Rs 12,500 crore in deposit has set a record as the first microfinance
institution to receive a banking license in India.

In the remarkable prologue to this success story, Ghosh himself came from a poor
family. “I was born in 1960 in Ramchandrapur village in Greater Tripura where my
father ran a small sweet-shop,” he says. “I was the eldest of six siblings in a joint
family of fifteen.”

The income from the shop could barely feed the family and his father struggled to
provide education for his children.

Ghosh studied up to Class XII in a government school in Greater Tripura and then
Statistics at Dhaka University, Bangladesh, in 1978.
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His accommodation and food in Dhaka was arranged by Brojonand Saraswati, a seer
whom his father revered, and who had an ashram in the University. To pay for his
fees, Ghosh gave private tuitions.

He spent his first income – all of fifty rupees – to go back to his village with a shirt
for his father. “He told me to give it to my uncle as he needed it more,” Ghosh
recounts. “He made me realize how important it is to think of others.”

The life-changing moment came in 1985 when, after completing his Masters, Ghosh
joined Dhaka-based BRAC, an international development non-profit working for
women empowerment in small villages in Bangladesh.

“The condition of women brought tears to my eyes,” he says. “Ill-treated by their

husbands, they were confined to their houses and deprived of health facilities.”

Strongly believing that women hold the key to the future generation, Ghosh worked
with BRAC for more than a decade before coming to Kolkata in 1997.

In 1998, he began to work for Village Welfare Society, a non-profit, to create

awareness among people about their rights. Travelling extensively in villages, he
found the situation of the women here no different than in Bangladesh.

“Women could stand on their feet only if they had the money to start their businesses,
but most were illiterate, had no knowledge of banking and were exploited by private
money leaders.”

That was when Ghosh decided to start a microfinance institution to provide loans to
women, but he had left his job and was finding it difficult even to make ends meet
for his mother, wife and son.

His brother-in-law came to his rescue and handed him Rs 1.65 lakh. Ghosh raised
an additional Rs 35,000 from a private lender and with Rs two lakh he started the
microfinance company, with just three employees.

Bandhan-Konnagar, a non-profit, with microfinance as its main component, came

into existence in July 2001 at Konnagar. “The name Bandhan was chosen with care
as it means togetherness, I was on mission to connect society,” Ghosh says.

“I travelled to small villages in Hooghly district to convince women to taken loans

from us for their business or fund their children’s education, but initially they eyed
me with a suspicion,” he says.

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The ground shift occurred in 2002 when the Small Industries Development Bank of
India (SIDBI) agreed to provide a loan of Rs 20 lakh to Bandhan-Konnagar.

Another branch of Bandhan came up in Bagnan in Howrah district, around 40

kilometers from Kolkata, the same year. The next year, Bandhan provided loans of
around Rs 15 lakh to 1,120 women.

However, they were forced to charge higher interest because Bandhan had to repay
the bank loan and factor in payment of salaries and other expenditures for running
the organization, which now had around 12 employees.

But they have reduced the interest now.

“We began by charging 30 per cent interest per annum, which has now dropped to
20.5 percent with no processing fee, the lowest being charged by microfinance
companies in the country,” he declares.

In 2009, Ghosh registered Bandhan as a NBFC (Non-Banking Finance Company)

with the Reserve Bank of India (RBI). To date, Bandhan’s microfinance program
has given loans only to women, the majority of them in rural areas, and changed the
lives of an estimated 79 lakh women.

One such woman is Aparna Paria from Champahati in Hooghly district. In 2005, she
took a first loan of Rs 2,000 from Bandhan to sell fish in her locality. With her
savings, she opened a grocery shop, which turned very profitable, and now she sells
bottled water and the Dish TV connections.

She has five employees working for her enterprise, and her son, who has graduated
in commerce, currently manages his mobile phone shop. Her current loan from the
bank is Rs 1.5 lakh.

Such life stories are the cornerstones of Bandhan’s exemplary progress. In 2013 it
applied for the universal bank license. On 23 December 2014 Bandhan Bank was
incorporated as a wholly owned subsidiary of Bandhan Financial Holdings.

On April 2014, it got the nod in principle for a bank license from the Reserve Bank
of India (RBI) and the final approval to start operations came on 17 June 2015.

Fittingly, Arun Jaitley, Minister of Finance, Corporate Affairs and Information and
Broadcasting, inaugurated Bandhan Bank on 23 August 2015 in Kolkata, with two
wings: micro banking and general banking.

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The RBI’s licensing norms stipulate that a new bank must have a Rs 500 crore
capital; Bandhan Bank started with a capital base more than five times that – with
Rs 2,570 crores.

Bandhan’s67 lakh microfinance borrowers and their accounts were formally

transferred to the new entity, creating a nearly Rs 10,000-crore loan portfolio to start
with.

The investors - GIC Private Limited, International Finance Corporation (IFC) and
the Small Industries Development Bank of India (SIDBI) – provided a solid backing.
The Bank commenced its operations as a universal bank on Day 1 with 501 branches,
2,022 Doorstep service centers (DSCs – the erstwhile microfinance branch offices)
and 50 ATMs spread across 24 States. Currently Bandhan Bank has 670 branches
spread across 29 states and Union territories.

The bank has outstanding credit of Rs 15,500 crore with an impressive repayment
rate of 99.5 percent. In the last seven months, 10 lakh new customers have been
added to the bank.

Bandhan has a deposit of Rs 12,500 crore and 84 lakh customers - both borrowers
and non-borrowers. Ghosh now has 20,600 people on his payroll, of which 90
percent are from rural areas.

The microfinance portfolio of Bandhan-Konnagar has been transferred to the bank.

However, the organisation continues to exist and carries on holistic development
programmes for the underprivileged involving education, health, livelihood
promotion, market linkage, enterprise development, employment generation,
renewable energy and the like in 11 States through a network of 470 branches.

Deservedly, Bandhan and its founder have won more than two dozen awards,
including the Microfinance India awards in the category ‘Institution of the Year’
from HSBC-ACCESS Development Services in October 2009 and the Genius HR
‘Entrepreneur of the Year’ Award from the AIMA Managing India Awards 2014.
Bandhan was recognised as a Global Growth Company by the World Economic
Forum in 2014.

Ghosh, now the Chairman and Managing Director of Bandhan Bank, is already
implementing his larger plan. “We fund non-formal education for underprivileged
children up to Class three,” he says.

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More than 1,200 such zero-fee and homework-free non-formal primary schools are
spread across West Bengal, Assam, Bihar, Jharkhand and Tripura where more than
39,000 children between 6-12 years are taught through edutainment.

Seven schools called ‘Bandhan Academy’ operate as low-cost formal schools from
Nursey to Class three in West Bengal with 150 students each. Besides, several health
and water projects are being run in several districts of West Bengal.

His mission is to educate children in every poor family and alleviate poverty – a
difficult path, but then, Ghosh has never chosen the easy one.

About Founder- Chandra Shekhar Gosh

He was born in 1960 in Ramchandrapur village in Greater Tripura where his father
ran a small sweet-shop. He was the eldest of six siblings in a joint family of fifteen.
The income from the shop could barely feed the family and his father struggled to
provide education for his children.

Ghosh studied up to Class XII in a government school in Greater Tripura and then
Statistics at Dhaka University, Bangladesh, in 1978. His accommodation and food
in Dhaka was arranged by Brojonand Saraswati, and who had an ashram in the
University. To pay for his fees, Ghosh gave private tuitions.

The life-changing moment came in 1985 when, after completing his Masters, Ghosh
joined Dhaka-based BRAC, an international development non-profit working for
women empowerment in small villages in Bangladesh. The condition of women
brought tears to his eyes,” he says. “Ill-treated by their husbands, they were confined
to their houses and deprived of health facilities.”

Vision- Bandhan Bank

To be a world class bank for convenient and affordable financial solution to all, an
inclusive and sustainable manner

Mission- Bandhan Bank

To provide our customers accessible, simple, cost effective and innovative
financial solutions in a courteous and responsible manner. To create value to all
stakeholders through a committed team, robust policies and superior systems and
technology

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Values- Bandhan Bank
Their values are around the business ethics, consumer focus and corporate
responsibility towards society at large.

CREATE
C-Cost effective and simple

R-Respect for all

E- Exemplary governance

A- Accountability, professionalism and discipline

T- Transparency and integrity

E- Effective team work and commitment

Bandhan Bank IPO

 Unlike other players in the microfinance industry, Bandhan Bank joined the
league of big banks only in August 2015. In less than three years, it has
emerged as a leader and is set for India’s biggest banking initial public
offering (IPO), at a time when its older and bigger peers are in duress.
 On March 06, the Securities and Exchange Board of India (SEBI) gave a go-
ahead for Bandhan Bank’s IPO, the draft papers for which were filed on Jan.
01. The lender must now list within three months.
 Bandhan Bank is reportedly expected to dilute 10% of its stake, valuing the
company at around Rs 40,000 crore ($6.15 billion).
 So far Bandhan Bank has been doing fairly good, like most of the other private
sector lenders, and there are no immediate signs of stress on the company’s
balance sheet. Also, it has its fundamentals in place and has good growth
prospects. Therefore, it will be interesting to watch out for its IPO,” said an
analyst with a domestic brokerage house, requesting anonymity as the pricing
and the valuation details are awaited.
 In the July-September quarter of last financial year, the bank posted a net
profit of Rs331 crore and its gross non-performing assets stood at 1.26% of
its total loans.

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 Financial Analysis of Bandhan Bank Q4FY18

Key Highlights
 Deposit portfolio grew 45.8% Y-o-Y
 Loan portfolio (on book + off book) grew 37.4% Y-o-Y
 CASA grew 70.1% Y-o-Y
 CASA ratio at 34.3%
 Added 2.6 million customers; total customer base at 13.01 million
 RBI Dispensation for deferment of MTM losses of ₹21.3 crore not availed
 GNPA (on book +Off Book) as on March 31, 2018 at 1.15% against 0.38%
as on March 31, 2017 and 1.59 % in Q3FY18.
 Capital Adequacy Ratio (CRAR) at 31.5%; Tier I at 30.3%

Highlights for the Quarter ended March 31, 2018

 Net Interest Income (NII) for the quarter grew by 25.2% at ₹863 crore as
against ₹689 crore in the corresponding quarter of the previous year
 Non-interest income grew by 57.4% at ₹203 crore for the quarter ended
March 31, 2018 against ₹129 crore in the corresponding quarter of the
previous year
 Operating Profit for the quarter increased by 32.8% at ₹704 crore against
₹530 crore in the corresponding quarter of the previous year
 Net Profit for the quarter grew by 20.3% at ₹388 crore against ₹322 crore
in the corresponding quarter of the previous year
 Net Interest Margin (NIM) for the current quarter stands at 9.3% against
10.7% in the corresponding quarter of the previous year CASA ratio at
34.3% of total deposit, compared to 29.4% in the corresponding period last
year
 CASA grew 70.1% Y-o-Y at ₹11,628 crore compared to ₹6,837 crore
 Total Advances (on book + off book) increased by 37.4% at ₹32,339 crore
as on March 31, 2018 against ₹23,543 crore as on March 31, 2017
 Total Deposits grew by 45.8% as on March 31, 2018 is at ₹33,869 crore as
compared to ₹23,229 crore on March 31,2017
 Gross NPAs as on 31st March 2018 at 1.15% (on book + off book), 1.25%
(on book)

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  Net NPAs as on 31st March 2018 at 0.54% (on book + off book), 0.58%
(on book)
 During the quarter Bank has raised equity capital of ₹ 3,662 crore through
IPO Added 2.6 million customers during FY 2017-18 with total customer
base reaching 13.01 million (Micro Banking –10.6 million; Non-Micro
Banking 2.4 million)
 Net Interest Income (NII) for the Year ended March 31, 2018 grew by
26.1% at ₹3,032 crore against ₹2,404 crore in the previous year
 Non-interest income grew by 71.8% at ₹706 crore for the Year ended
March 31, 2018 against ₹411 crore in the previous year
 Operating Profit grew by 35.5% for the Year ended March 31, 2018 at
₹2,430 crore against ₹1,793 crore in the previous year
 Net Profit for the year ended March 31, 2018 grew by 21% at ₹1,346 crore
against ₹1,112 crore in the previous year

Key Ratios
Particulars (in %) FY 2017-18 FY 2016-17

CASA to Total Deposit 34.3 29.4

Net Interest Margin 9.7 10.4

Cost to Income Ratio 35 36.3

Return on Average Assets 4.1 4.5

Return on Average Equity 26 28.5

Capital Adequacy Ratio (CAR) 31.5 26.4

Gross NPA (on book + off book) 1.15 0.38

Gross NPA (on book) 1.25 0.51

Net NPA (on book + off book) 0.54 0.26

Net NPA (on book) 0.58 0.36

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 Peer Comparison

Share Price Comparison

Share Price as on 15 June 2018

2500

2000
2029.6 1967.35
1500

1000

500
550.15 528.75
43.25
0
Bandhan Bank IDFC Bank HDFC Bank Indusind Bank Axis Bank

Market Capitalization (in Cr.)

Market Cap in Cr
600000

500000 5,28,365.70
400000

300000

200000

100000 1,35,777.97
1,18,120.73
65622.16 14,722.76
0
Bandhan Bank IDFC Bank HDFC Bank Indusind Bank Axis Bank

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Net Interest income (in Cr.)

Net Interest Income

90,000.00
80,241.35
80,000.00
70,000.00
60,000.00
50,000.00 45,780.31
40,000.00
30,000.00
17,280.75
20,000.00
8,930.00
10,000.00 4,802.30
0.00
Bandhan Bank IDFC Bank HDFC Bank Indusind Bank Axis Bank

Net Profit (in Cr.)

Net Profit
20,000.00
17,486.75
18,000.00
16,000.00
14,000.00
12,000.00
10,000.00
8,000.00
6,000.00
3,605.99
4,000.00
1,345.56 859.3
2,000.00 275.68
0.00
Bandhan Bank IDFC Bank HDFC Bank Indusind Bank Axis Bank

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 Liquidity Ratios

Current Ratio

Current ratio
0.8
0.6
0.4
0.2
0
2017 2016 2015
Bandhan Bank IDFC Bank Indusind Bank HDFC Bank

Quick Ratio

Quick Ratio
25
20
15
10
5
0
2017 2016 2015
Bandhan Bank IDFC Bank Indusind Bank HDFC Bank

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 Profitability Ratios

Return on Long Term Funds %

Return on Long Term %

100
80
60
40
20
0
2017 2016 2015
Bandhan Bank IDFC Bank Indusind Bank HDFC Bank

Return on Net worth %

Return on Net Worth %

30

20

10

0
2017 2016 2015
Bandhan Bank IDFC Bank Indusind Bank HDFC Bank

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 Investment Valuation Ratio

Operating Profit per Share in Rs.

Operating Profit Per Share in Rs

200

0
2017 2016 2015
-200

-400

-600
Bandhan Bank IDFC Bank Indusind Bank HDFC Bank

Net Operating Income per Share in Rs.

Net operating income Per Share In

Rs.
300
200
100
0
2017 2016 2015
Bandhan Bank IDFC Bank Indusind Bank HDFC Bank

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The Journey- Conclusion
 A year on, Bandhan was able to secure bank funds and began expanding.
In 2009, Bandhan was registered as a non-banking financial company
providing select banking services.
 In 2013, after a gap of over a decade, the Reserve Bank of India opened
the counters for new banking licences. Bandhan Microfinance was among
the 25 applicants, including conglomerates like the Birlas, L&T, Bajaj, and
others, that made the cut. In April 2014, it was granted in-principle
approval to start a bank.
 The final licence was granted in June 2015 and Bandhan commenced
operations two months later.
 Since then, its network has expanded from 501 branches and 50 ATMs to
840 branches and 383 ATMs across the country as of September 2017.
With a customer base of 11 million, it has managed to expand its loan book
to Rs20,800 crore and has also mobilised Rs23,500 crore in deposits. Till
September 2017, about 90% of the bank’s business was still made up of
the small loans extended to small entrepreneurs.
 In its IPO, Bandhan Bank will issue up to 97.6 million equity shares and
an offer for sale of up to 21.56 million shares. The listing is in keeping
with the RBI’s compliance norms that require the lender to join the
exchanges within three years of starting operations. However, the funds
raised from the proceeds will be used to augment the bank’s coffers. Ghosh
declined to comment on the listing announcement.
 Nevertheless, Bandhan Bank has proven that social causes can be good
business, too.

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