Bandhan Bank is on track to bring down the share of group microfinance loans in its portfolio to 50 per cent by March. This decision is part of the lender’s strategy to diversify its asset mix as well as expand the emerging entrepreneurs business (EEB).
At the end of the second quarter of the fiscal, the EEB asset book of the bank stood at Rs 54, 040 crore of which group loan was Rs 46,270 crore. This amounts to 56.7 per cent of the loan book of the bank. The share of group loans has been on a continuous decline over the past few quarters (see chart).
The bank has internally set an exposure limit of around Rs 1.5 lakh for group borrowers. However, this may not be adequate for some of the borrowers with higher demand and better repayment capabilities.
“A couple of years back we did a survey and found out that there is a challenge to finance those who are able to run a good enterprise, as part of the group,” Bandhan Bank managing director and CEO Chandra Shekhar Ghosh said.
“The process slowed because of the pandemic and has picked up now. We are looking at good borrowers from the group for individual financing. I expect the share of group loans to come down to 50 per cent by March,” he added.
The bank has set a target to have an asset mix of 30 per cent EEB loans, 30 per cent housing, 30 per cent commercial and 10 per cent retail by 2025. As of September 30, 2021, EEB accounted for 66 per cent, housing 24 per cent, commercial 8 per cent and retail at around 1 per cent of the total advances of Rs 81,661 crore.
Recovery plan
Ghosh said that an encouraging trend for the bank during the quarter was the proportion of non paying microfinance borrowers coming down from 9 per cent as of June 30, 2021 to 4 per cent as of September 30, 2021.
There was also a reduction in the partial paying customers from 29 per cent as of June 30, 2021 to 17 per cent as of September 30, 2021.
“Customer queries have started to come in along with repayment. Group attendance has started improving. This is a good sign of the risk coming down in future,” he said.
The bank’s non performing assets have shot up to 10.8 per cent in the second quarter of the fiscal from 8.2 per cent during the first quarter and 1.2 per cent in the corresponding second quarter of previous year.
The bank has identified an aggregate EEB stress pool of Rs 19,500 crore and estimates to recover around Rs 6,000 crore by March 31, 2022. This will be further supported by the CGFMU scheme (credit guarantee for micro units), Assam relief scheme and the bank's own provision of Rs 9,500 crore.
“The confidence in recovery comes from the collections that we have seen during the quarter and what we see in October. Our including arrears collection efficiency has been at 130 per cent and if that rate continues for the next 3 months, I don’t think we will have a challenge to recover Rs 6,000 crore,” said Sunil Samdani, chief financial officer, Bandhan Bank, at the quarterly earnings call.
The bank has made close to Rs 1,100 crore recovery from the stress pool in September, and Samdani said the trajectory of the recovery is going up.
