Bandhan started as Bandhan Konnagar in 2001 as a non-governmental organisation (NGO) providing microfinance services to socially and economically disadvantaged women in rural West Bengal. Bandhan Financial Services (BFSL) started its microfinance business in 2006. The NGO transferred its microfinance business to BFSL in 2009. Thus, the entire microfinance business was undertaken by BFSL from 2009.

1. CMP - 416 Date - 19th
October 2018
Stock Information
Founder(s) Chandra Shekhar Ghhosh
Headquarters Kolkata, West Bengal, India
No. Of Branches 938
Key People 1. Mr. Chandra Shekhar Ghosh
(MD and CEO)
2. Mr. HR Khan (Chairman)
3. Mr. Sunil Samdani (Chief
Financial Officer)
Products Consumer banking, Loans,
Mortgage loans, Private
banking, Microfinance
Interest Income (FY 2018) Rs. 4800 Crore
Operating Income (FY 2018) Rs. 1722 Crore
Net Income (FY 2018) Rs. 1345 Crore
Total Assets (FY 2018) Rs. 44310 Crore
P/B Ratio 5.29
P/E Ratio 30
No. Of Employees (FY 18) 28159 Employees
Total Advances 32,589 Crore
Total Deposits 30,703 Crore
CASA Ratio 35.46 %
Market Capitalization 55,800 Crore
No. Of Customers ~1.4 Crores

2. About Bandhan Bank
Bandhan started as Bandhan Konnagar in 2001 as a non-governmental organisation
(NGO) providing microfinance services to socially and economically disadvantaged
women in rural West Bengal. Bandhan Financial Services (BFSL) started its microfinance
business in 2006. The NGO transferred its microfinance business to BFSL in 2009. Thus,
the entire microfinance business was undertaken by BFSL from 2009.
Bandhan Bank Ltd. is one of the few financial institutions that have registered a
substantial growth in a short span of time. The bank got its banking license in 2014 from
RBI for setting up a universal bank. BFSPL was founded under the supervision and
support of Mr. Chandra Shekhar Ghosh for offering loans to small businessmen who do
not have access to formal banking services. BFSPL has earned a substantial credibility in
the last 16 years along with many accolades for having more than 6 million women
borrowers and providing financial assistance to small entrepreneurs.
Investment Rationale
1. Sailing through Difficulties
Bandhan MFI was one of the few institutions to sail through the AP crisis (2011),
demonetisation (2016), farm loan waivers, etc. It has demonstrated stellar growth at
~90% CAGR in those 10 years. Even in the last five years, advances grew at 51% CAGR. In
bank, AUM has grown from 15,578.4 crore as of FY16 to 32,340 crore as of FY18 while
customer base has increased to ~1.37 crore. Micro credit forms 86% of loan book while
retail, SME together are still small. Asset quality is strong at 1.2% GNPA ratio.
2. Well Capitalized
The bank’s capital adequacy ratio (CAR) as on FY17 was at 26.4% with Tier I capital at
24.8%. With fresh capital from IPO proceeds added to networth and strong profitability
in FY18, the CAR strengthened further to 32.7% with Tier improving to 31.5%. The RBI
requires a minimum capital adequacy ratio of 13% of a bank's total risk-weighted assets.
However, as per new banking licence shareholding norm from RBI, Bandhan Bank’s
promoter – Bandhan Financial Holdings is required to reduce its shareholding in the
bank to 40% within first three years of commencement of operations, which ends in
August 2018. As of March 2018, promoter holding is at ~82.3%. The management has
indicated continuous engagement with RBI for an extension of the timeline. Accordingly,
the dilution may get an extension of at least two to three years.
3. Robust Financials
The bank has a CASA ratio of about ~35%, when compared with other banks and MFI’s,
we can conclude that the bank stands at a decent CASA ratio. The bank has GNPA of only
1.26% when compared with industry average of more than 5%. The bank also has an
impressive NIM of 10.1%. Also, the Cost/Income Ratio stands at 34.25% which is very
low compared to other peers.

3. 4. Experienced Board and Managerial Team
The management team has a strong track record and significant experience in the
microfinance and banking industries. Founder, Managing Director and Chief Executive
Officer, Chandra Shekhar Ghosh, has 37 years of experience in the Indian microfinance
industry. Throughout his career, Mr Ghosh has been the recipient of numerous
accolades for his contributions to the microfinance sector and designation as a Senior
Ashoka Fellow.
Currently, the Board has 12 Directors comprising one Executive Director & eleven
Non-Executive Directors. Within these 11 Non-Executive directors, two are Nominee
Directors and eight Independent Directors of which one director is a woman.
Risk Factors
 Limited operating history and fast growing and rapidly evolving business make it
difficult to evaluate the bank’s business and future operating results on the basis of the
past performance, and future results may not meet or exceed past performance.
 A substantial portion of bank’s operations are located in East and Northeast India,
making the bank vulnerable to risks associated with having geographically concentrated
operations.
 The bank derives a substantial portion of their interest income from loans that are
due within one year, and a significant reduction in these short-term loans may result in a
corresponding decrease in their interest income.
 The Bank’s micro finance loan portfolio is not supported by any collateral that could
help ensure repayment of the loan, and in the event of non-payment by a borrower of
one of these loans, the bank may be unable to collect the unpaid balance.
 The bank do not own the premises at which their Registered and Corporate Office,
branches, ATMs, DSCs and other office premises are located.
 Reduction in promoter stake to 40% as per RBI norms
 As per RBI’s new bank licensing guidelines, Bandhan Bank’s promoter –
Bandhan Financial Holdings Ltd is required to reduce its shareholding in the bank to
40% within the first three years of commencement of operations, ending in August
2018. As of March 2018, the promoter holding was at ~82.3%. The management has
indicated at continuous engagement with the RBI for an extension of the timeline.
Rejection of an extension on part of the central bank could entail huge equity supply
and thereby substantial dilution in performance parameters.
State/ Union Territory Branches DSCs Total Advances
East India 55% 51% 59%
Northeast India 12% 18% 22%
East and Northeast India Total 67% 69% 81%

4.  Political risk/monsoon risk weigh on MFI business
 With a substantial proportion of loans towards the lower strata of society
wherein dependency on agriculture is high, loan repayment is seen being prone to
monsoon. Political activities, including loan waiver, have a substantial impact on
credit behavior of borrowers and thereby collection efficiency of micro finance
lenders. With India approaching a slew of state elections and general election in the
next 6-10 months, the risk of political volatility cannot be ruled out. Therefore,
irregularity in monsoon and political volatility in the region with meaningful
exposure could impact asset quality as well as profitability.
Philosophy
Bandhan Bank Services
The services offered by Bandhan Bank cover almost every array of financial services such
as accounts, loans, deposits, and NRI banking. An explanation of all the services offered
by the bank is given here.
 Accounts: Bandhan Bank offers two basic types of accounts savings account and
current account. Both the accounts have a few sub-categories designed for specific
individual needs.
Savings Account: Savings account at Bandhan Bank offer higher interest rates and
greater convenience across a wide network of branches and ATMs. The basic
savings accounts offer all the facilities including ATM cum Debit card, shopping, and
online fund transfer. However, customers can also choose the other account
options in this category such as Premium, Standard, Special, Advantage, and
Sanchay. All these accounts are particularly designed for different needs of people
depending on their financial capability. The bank offers a 6% interest rate to
accounts with balance above Rs. 1 lakh and 4% interest rate for accounts with
balance less than Rs. 1 lakh.

5. Current Account: These accounts have higher daily withdrawal limits and come
with overdraft facility as well. The range of current accounts includes Biz Premium,
Biz Standard, Biz Advantage, and Biz Samridhi accounts.
 Loans: Being a microfinance company from the start, Bandhan Bank understands
the rising needs of today’s population and offers loans accordingly. The loan category
comprises of a few loans created specifically for your dynamic needs. This category has 5
sub-categories.
Retail Loans: The retail loan category includes the common types of loans that are
necessary at different stages of life. The types of loans are home loan, vehicle loan,
personal loan, loan against property, loan against term deposit, and gold loans.
MSME Loans: The bank offers a wide range of MSME loans to start or aid small or
medium enterprise. Such loans help to enhance liquidity in businesses and create
income generating assets. The MSME category includes:
 Samriddhi Business Loan: Can be taken as working capital loan or a term
loan. The maximum loan can be up to Rs. 25 lakh with a maximum tenure of up
to 5 years.
 Commercial Vehicle Loan: Maximum loan amount of Rs. 10 lakh and a
tenure of up to 5 years.
 Term Loan: The loan amount depends on requirement and due assessment
done by Bandhan Bank. The maximum loan tenure is of 7 years.
 Equipment Loan: Offers a maximum loan amount of Rs. 10 lakh and a
maximum tenure of 60 months.
 Working Capital Loan: This is another loan that is given based on the bank’s
assessment. Being a working capital loan, it is repayable on demand.
Small Enterprise Loan (SEL): This loan is designed for small enterprises that cannot
afford to keep collateral as security and need finance for working capital or income
generating activities. This product is specially offered to the people who need both
working capital and term/demand loan. The loan amount can range from a
minimum of Rs. 1 lakh to a maximum of Rs. 10 lakh. The loan tenure is kept at 3
years with comfortable payment mode that allows individuals to manage the
repayment easily. These are composite loans that offer doorstep assistance and
simplified documentation.
Microloans: These are granted to individuals who want to establish a small business
from their home. This product is especially created for women who want to start a
co-owned/co-run business. The loan amount can start from Rs. 1,000 and can go up
to Rs. 1 lakh depending on the specific scheme. The schemes that come under this
head are Suchna, Suraksha, Srishti, and Sushiksha.
Agri Loans: As the name suggests, Agri Loans are created for farmers who want to
build quality farms producing superior quality crops. This product helps farmers
organise and optimise farming and other allied operations. The maximum loan
amount available under the several schemes under this head can go up a maximum
of Rs. 10 lakh. The schemes include Kisan Credit Card, Agri Allied and Equipment
Loan.

6.  Deposits: Term deposits offered by Bandhan Bank can be utilised for various needs
and future plans. The deposits offered by Bandhan Bank include FDs and RD. The several
types of FDs available are FD Premium, FD Standard, FD Tax-Saver, FD Advantage and FD
Dhan Samriddhi. The minimum deposit amount for FDs starts from Rs. 1,000 which goes
up to a maximum of Rs. 1 crore for FD Premium. The bank offers a maximum interest
rate of 7.40% per annum for regular customers and 7.90% interest rate per annum for
senior citizens.
 NRI Banking: NRI banking from Bandhan Bank includes world-class services and
benefits for non-residents. This allows NRIs to invest and take benefit of the several
savings and time deposit schemes offered by the bank. Non-Resident Ordinary (NRO)
and Non-Resident External (NRE) account is available for NRIs for opening savings and
deposit accounts. This section of the services is handled by experienced banking
professionals. The bank is committed to delivering efficient, transparent and
customer-friendly services that offer maximum benefits to this group of customers.
Product Portfolio
1. Savings Account
Premium MAB 1,00,000 (Every Service Complimentary)
Advantage MAB 25,000
Standard MAB 10,000
Sanchay MAB 2,000 (Only for Rural Areas)
Special MAB 5,000 (For Differently abled)
Others -
2. Current Account
Biz Premium MAB 1,00,000
Biz Advantage MAB 25,000
Biz Standard MAB 5,000
Other -
3. Loans
Home Loans
Loan Against Property
Two Wheeler Loans
Loan against TD
Personal Loan
Gold Loan

7. 4. MSME Loans - >10,00,000
Working Capital Loans
Term Loans
5. Small Enterprise Loans - 1,00,000 to 10,00,000
6. Micro Loans - <1,50,000
Product(s) Ticket Size Tenure Purpose
Suchana 1,000 - 25,000 Upto 1 Year Self-employement
Srishti 25,001 - 1,00,000 Upto 2 Year Self-employement
Suraksha 1,000 - 10,000 Upto 1 Year Healthcare
Sushiksha 1,000 - 10,000 Upto 1 Year Education
7. Agri Loans
Kisan Credit Card Equipment Agri-allied
8. Deposits
9. NRI Banking
Shareholding Pattern
Company Overview
Bandhan started as Bandhan Konnagar in 2001 as a non-governmental organisation
(NGO) providing microfinance services to socially and economically disadvantaged
women in rural West Bengal. Bandhan Financial Services (BFSL) started its microfinance
business in 2006. The NGO transferred its microfinance business to BFSL in 2009. Thus,
the entire microfinance business was undertaken by BFSL from 2009.
Shareholder Holding %
Promoter 82.3
Institutional
Investors
11.4
Others 6.3

8. Bandhan’s performance as NBFC until 2015
On April 9, 2014, RBI granted an in-principle approval to BFSL to set up a scheduled
commercial bank in the private sector. Upon receipt of the in-principle approval, BFSL
and Bandhan Bank entered into a business transfer agreement to transfer all of BFSL’s
existing microfinance business, including all assets, liabilities, accumulated profits and
entire infrastructure, along with a wide consumer base to the bank. By the time BFSL
transferred its microfinance business to the bank, it was India’s largest microfinance
company with AUM of ~ 8309 crore and ~70 lakh customers. With historical strength in
the microfinance segment, Bandhan Bank, which began operations on August 23, 2015,
is now a commercial bank focused on serving underbanked and underpenetrated
markets in India.
As can be seen in the above exhibit, Bandhan’s performance before becoming a bank
has been superior on all fronts. Loans have increased at 39% CAGR while earnings have
risen at 24% CAGR to 430 crore in FY12-15. Asset quality remained stable while return
ratios were one of the best in the industry.
However, even after becoming a bank, its superior performance has continued. It has
started its operations on 23rd
August 2015 with 501 branches, 50 ATM’s and 2022 DSC’s
(Dedicated Service Centres). As of now, the Bank has 937 branches, 430 ATM’s and 2764
DSC’s. The bank has more than 1.37 crore customers out of which 1.1 crores Micro
finance customers and 27 lakhs general banking customers.
The bank plans to have 1000 branches and 3000 DSC’s by year end.
In terms of area of operations of the bank, east and northeast India (especially West
Bengal, Bihar, Assam) are strongholds for the bank with a substantial presence in terms
of branches, DSCs, proportion of deposits and advances. As of December 2017, ~65% of
branches are in eastern and north-eastern India. In terms of advances, ~80.8% of loans
comprises the east and north-eastern regions. However, the bank is focusing on
developing a pan-India network to achieve geographical diversification. Accordingly, the
bank has increased its footprint to 33 states and union territories from 24 states and
union territories at the commencement of banking operations.
On the deposit front, the book has grown from zero as of August 23, 2015 to 33869
crore as on FY18, with CASA ratio at ~34.3% and retail-to-deposit ratio at 85.07%. For
FY18, net interest income (NII) amounted to | 3032 crore vs. 2404 crore in FY17. The net
interest margin (NIM) was at 9.7% for FY18 compared to 10.4% in FY17.
FY’12 FY’13 FY’14 FY’15
NII (Rs. Crore) 402 358 535 750
PAT (Rs. Crore) 226 218 294 430
Loans 3103 4097 5801 8309
GNPA % 0.0 0.0 0.7 0.6
RoE % 34.9 27.3 28.3 31.1
RoA % 5.4 4.5 4.8 5

9. Business Model
Bandhan Bank is a unique business model of high yielding micro finance loan portfolio
(94% priority sector fulfilment) and low cost deposit franchise with 35.46% CASA offered
in the ambit of a commercial bank. It was the only MFI to receive a universal banking
licence from the RBI in 2014 led by Founder, MD and CEO, Chandra Shekhar Ghosh, who
has 37 years of experience in the Indian microfinance industry.
Bandhan Bank, with 13-14% market share, operates 937 branches and 2,764 dedicated
doorstep services centres servicing ~1.37 crore customers in 34 states including Union
Territories. East and northeast (West Bengal, Bihar, Assam) are its stronghold. FY18 AUM
was at 32340 crore a PAT at 1346 crore.
Business Mix
Customer Distribution
Among all the customers, 72% customers have only single loan, it is a positive sign for
the Bank as the loan book is more diversified.
In terms of geography, most MFI loans are in rural areas at ~55%. In terms of regions,
south dominates the overall loan portfolio outstanding of MFIs with 43% followed by
East with 23%. Central and West have a share of 17% and 9%, respectively. North and
North East have least portfolio share of 5% and 3%, respectively.
Geographical Distribution
The bank has 57% of its loan book from its eastern Indian operations consisting of states
like West Bengal, Jharkhand, Bihar etc. It has about 43% of Loan book from Rest of India.
I find this as little concerning because of concentration of Bank’s loan book in a
particular region. Still, the management believes that in the coming years, the bank will
diversify its portfolio to a greater extent.

10. Geographical Distribution of MFI’s in India
In the above picture, we can see that 55% of of MFI loans are disbursed to Rural areas.
Bandhan being a rural player has an advantage because it’s majority of disbursement
goes to rural areas and it has a huge market in rural areas. Now, when we see zonal wise
distribution of MFI loans in India, we can see that Southern region has bulk of MFI loans
and North East has only 3% of all MFI loans combined. This is because North east region
has vast majority of population with very less or no credit history. Now, As bandhan bank
specializes in providing loans to underbanked and underprivileged, I see a huge potential
in Bandhan Bank’s loan book growth in North Eastern region.

11. Indian Economy Overview
 It is estimated that Indian economy will grow at 7% for the fiscal year 2018. Banks
will play a major role for attaining this level of growth.
 India’s economy turned in a resilient performance in FY 2017-18 due to strong
rebound in the second half of FY 2017-18 on the back of a turnaround in investment
demand. This was supported by accelerated manufacturing, rising sales growth, pick-up
in capacity utilisation, strong activity in the services sector and record agriculture
harvest. Thus because of ample growth in Industrial and Agricultural sector, Bandhan
Bank will hugely benefit from the opportunities in these sectors.
 The performance of India’s banking sector, especially the public-sector banks,
remained subdued. The gross non-performing advances (GNPA) ratio for Scheduled
Commercial Banks increased from 9.6% to 10.2% between March 2017 and September
2017. But, Bandhan being a private sector bank has very impressive GNPA Ratio of 1.3%.
I expect GNPA ratio to remain below 1.75 % in coming few years as most of the loan
given by Bandhan bank has to be repaid in less than 1 year, thus risk is low.
 Industrial sector credit growth picked pace in November 2017 after remaining
persistently negative from October 2016 to October 2017. However, the growth of credit
to medium scale industry has remained negative since June 2015. But, Small Scale
industries has seen a rapid growth. As Bandhan contributes majorly to Small Scale
Industry, the loan book is expected to grow at current rate.
 The provision of funds for re-capitalisation of public sector banks coupled with
improved recovery due to speedy resolution under new Bankruptcy law, would enable
the Banks to capitalise on the rising demand for credit due to projected higher growth
rates in the next two to three years’ time horizon.
 The Government of India (GoI) has rolled out several initiatives to increase the
adoption of digital transactions mainly in the Retail Banking space. The bedrock created
by these initiatives is likely to usher in various trends in digital banking. The following
trends could become major differentiators in future for India’s banking industry:
a) Machine learning and use of chatbots
b) Extension of digital coverage to corporate banking and small and medium
enterprises (SME) as hitherto digital coverage has mainly been profound in Retail
Banking space
c) Innovation in digital banking offer cost-effective solutions for including data rich but
credit poor customer into mainstream banking
d) Bank-Fintech partnership will continue to grow driving down the overall cost of
intermediation, and thereby exerting pressure on banks’ profit margins
e) Robotic process automation
 According to a Ministry of Electronics and Information Technology (MeitY) scorecard
for 38 banks, Bandhan Bank is among the only 8 banks to have a ‘good’ rating in digital
transactions for FY 2017-18.

12. Summary of Banking Industry in India
 The Indian banking system consists of 27 public sector banks, 22 private sector
banks, 44 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and
93,550 rural cooperative banks, in addition to cooperative credit institutions. Bank credit
grew at 12.64 per cent year-on-year to Rs 85.511 lakh crore (US$ 1,326.78 billion) on
May 11, 2018 from Rs 75.91 lakh crore (US$ 1,131.47) on May 12, 2017.
 Credit off-take has been surging ahead over the past decade, aided by strong
economic growth, rising disposable incomes, increasing consumerism & easier access to
credit
 Strong growth foreseen in in household financial savings.
 CRISIL Research expects the pace of economic growth to pick up in the medium
term, as structural reforms, such as GST and the bankruptcy code, aimed at removing
constraints and raising the trend rate of growth.
 As per the World Bank forecast, the Indian economy is projected to grow at a 7.3%
CAGR over the next year and at 7.5% in 2019-2020. Growth in India will be higher than
many emerging and developed economies, such as Brazil, Russia and China.

13.  Strong growth in savings in financial assets
 Growth in Deposits
 As of Q3 FY18, total credit extended surged to US$ 1,288.1 billion.
 Credit to non-food industries increased by 9.53 per cent reaching US$ 1,120.42
billion in January 2018 from US$ 1,022.98 billion during the previous financial year.
 Demand has grown for both corporate & retail loans; particularly the services, real
estate, consumer durables & agriculture allied sectors have led the growth in credit.
 The digital payments revolution will trigger massive changes in the way credit is
disbursed in India.
 Rising incomes are expected to enhance the need for banking services in rural areas
and therefore drive the growth of the sector.

14. Post becoming Bank...
 Out of overall customer base, 72% customers have only single loan. This helps the
bank a lot in diversification. Because of Bandhan becoming a bank, Customers are
closing their other MFI loans and are maintaining a relationship with Bandhan.
 83% of Bandhan’s total loan book consist of Micro Loans. As we have already
discussed there are 4 products under Micro Loans category i.e. Suchana, Srishti,
Suraksha and Sushiksha.
 Suchana and Srishti have IRR of >18%
 Suraksha and Sushiksha have IRR of <18%
 Now, the high IRR is seen because Bandhan was a microfinance company earlier, but,
as now it has become a full-fledged Bank, we may not see such a high IRR in future.
 Bandhan’s Cost of Capital is ~6.53%
 Average Savings deposit cost ~5.1% It increased from 5% to 5.1% because of
increase in deposits and deposits above Rs. 1,00,000 attract an Interest Rate of 6%.
Source - ConCall Transcript
 Coming to Non-Micro Credit, all Non- Micro Credit are secured and the primary
security is Stock.
 As of now, Bandhan Bank has reported no Related Party transactions.
Non-interest Income
The bank has two sources of Non-Interest Income, i.e. Processing Fees and Priority
Sector Lending Certificates (PSLC).
1. Processing Fees accounted for 100 Crores of revenue in the current quarter. The bank,
with low processing fee compared with other banks, still managed to collect a significant
portion of revenue from processing fee.

15. 2. PSLC - Priority Sector Lending Certificates is a tool for promoting comparative
advantages among banks while they meet their priority sector lending obligations in
India. "Banks with a comparative advantage in lending to the priority sector should earn
priority sector lending certificates [social credits] while those falling short of the target
would be required to buy priority sector lending certificates [social credits]
 The revenue for the FY 18 accounted for Rs. 256 Crore of revenue from PSLC. This
Revenue is amortized over 4 quarters. Thus PSLC revenue accounted for Rs. ~65
crore in the last quarter.
 By mandate, minimum 40% of loan book must consist of Priority Sector Lending
which includes sectors like Rural Loan Book, Education, Healthcare etc.
 Since about 96% of lending of Bandhan Bank is in Priority Sector, it can sell
remaining 56% of loan rights to other banks.
 PSLC represents a significant amount of banks income, also, because of its more
focus towards priority sector lending, it will continue to enjoy income from PSLC’s.
Quarter Report (Q1 FY19) Analysis
 In the last Quarter, lending increased by 250 Cr., Y-o-Y Credit growth is about
~52.37%. The profit for the Quarter stands at Rs. 482 Crore compared with profit of
Rs. 327 cr for first quarter of last year, translating to growth of 47.58%
 Deposits at the first quarter of FY 2017 stood at 22439 Crore while in the first
quarter of FY 2018, Deposits stood at 30703 Crore which translates to growth of
36.83%
 CASA increased from 26.33% to 35.46 % in this Quarter. Out of 35.46% CASA, CA
contributed 6.75% and SA contributed 28.71%. I believe that the growth in CASA
Ratio is very healthy.
 NIM from last quarter grew from 10% to 10.27% which suggests that the bank has
increased its margins.
 Cost to Income ratio which indicates Operating costs as a percentage of Operating
income reduced from 35.65% to 34.25%. Such a low Cost to Income Ratio indicates
that the Bank is efficiently managing its operations.
 Return on Assets increased from 4.40% to 4.49% which again shows an increase in
efficiency of company’s Assets.
 However, the company’s ROE declined significantly from 28.10% to 19.92% but this
steep decline is because the IPO which the company has issued earlier this year.
Because of the IPO, the denominator, i.e. The total equity increased significantly
driving down the ratio.
 Net NPA increased from 0.58% to 0.64%. However, I don’t see this slight increase in
NPA as an alarming issue. This increase in Net NPA may be because the company has
expanded its operations.

16.  The company has added 7 Lakh new customers in this quarter. Out of 7 Lakhs, 4
Lakh customer are Micro credit customers and 3 Lakh customer are General Banking
customer. The Bank, since its inception in 2015 has been adding customers at a
rapid pace, which has driven the growth significantly.
Recent RBI Sanctions
On 28th
September 2018, RBI imposed sanctions on Bandhan Bank, stopped Branch
expansion and froze CEO’s compensation for non compliance of promoter holding rules.
According to RBI, a Bank’s promoter can hold maximum of 40% stake in a Bank. If the
stake is more than 40%, promoter will have to dilute the stake in 3 years from the date
of commencement of Bank. This date was due on 23rd
August, 2018. Due to failure of
promoter to follow the above RBI guidelines, RBI imposed the sanctions.
However, after imposing the sanctions, the promoter conducted a conference call
assuring investors that in spite of sanctions on branch expansion, it would not hurt the
growth of the bank. The bank will continue to grow at current levels due to growth in
“same branch customer growth”
The promoter justified the statement by saying that currently Bandhan’s branches on an
average have 3000 customers, whereas in an established bank, average branch has
about 25000 customers. So, there’s still a lot of scope for “same branch customer
growth”
Now, on being asked about the options available to bank to reduce the stake to 40%, the
management replied that there are plenty of options available for bank to reduce the
promoter’s stake, including secondary sale, inorganic growth, etc. However, the
promoter did not say how exactly will it reduce the stake to 40%. He concluded by saying
“We are trying to satisfy the compliance as early as possible.”.
Post this, on Monday, 1st
October, 2018 opening, the share price of Bandhan Bank fell
113 points to ~450 rupees. I believe that this price fall was mostly due to investor panic. I
believe that this correction makes the share more attractive as it is now available at a
lower price multiples.
Quarter Report (Q2 FY19) Analysis
 Net Interest Income (NII) for the quarter grew by 55.6% at 1078 crore as against
693 crore in the corresponding quarter of the previous year
 Non-interest income grew by 3.1% at 230 crore for the quarter ended September
30, 2018 against 223 crore in the corresponding quarter of the previous year
 Operating Profit for the quarter increased by 46.9% at 874 crore against 595
crore in the corresponding quarter of the previous year
 Net Profit for the quarter grew by 47.4% at 488 crore against 331 crore in the
corresponding quarter of the previous year

17.  Net Interest Margin (NIM) for the current quarter stands at 10.3% against 9.3% in
the corresponding quarter of the previous year and 9.7% for FY 2017-18
 CASA ratio at 36.9% of total deposit, compared to 28.2% in the corresponding
period last year
 CASA grew 69.8% Y-o-Y at 12,176 crore compared to 7,170 crore
 Total Advances increased by 50.9% at 33,373 crore as on September 30, 2018
against 22,111 crore as on September 30, 2017
 Total Deposits grew by 29.6% as on September 30, 2018 is at 32,959 crore as
compared to 25,442 crore on September 30, 2017.
 Gross NPAs as on 30 September 2018 at 1.3% against 1.3% as on 30 June 2018 and
1.4% as on 30 September, 2017
Strong deposit franchisee in short span, high CASA offers low CoF
Bandhan Bank has focused on building a strong deposit base and has grown from zero as
of August 23, 2015, to 33,869 crore in FY18. Current and savings account deposit (CASA)
was at 11,617 crore, constituting 34.3% of deposits. CASA provides stable low-cost
funding with CoF now at 6.7%.
Financial Trends
Gross AUM growth to continue strong at 38%

18. Strength in Net Income and PAT to continue
Margin trends hover around 9%
Asset Quality Trends

19. Financials
Balance Sheet
Mar 18 Mar 17 Mar 16
12 mths 12 mths 12 mths
EQUITIES AND LIABILITIES
SHAREHOLDER'S FUNDS
Equity Share Capital 1,192.80 1,095.14 1,095.14
Preference Share Capital 0.00 0.00 0.00
Total Share Capital 1,192.80 1,095.14 1,095.14
Revaluation Reserve 0.00 0.00 0.00
Reserves and Surplus 8,189.14 3,351.31 2,239.36
Total Reserves and Surplus 8,189.14 3,351.31 2,239.36
Money Against Share Warrants 0.00 0.00 0.00
Employees Stock Options 0.00 0.00 0.00
Total ShareHolders Funds 9,381.95 4,446.46 3,334.50
Equity Share Application Money 0.00 0.00 0.00
Preference Share Application Money 0.00 0.00 0.00
Share Capital Suspense 0.00 0.00 0.00
Deposits 33,869.00 23,228.66 12,088.75
Borrowings 285.00 1,028.94 3,051.65
Other Liabilities and Provisions 774.11 1,532.04 1,281.60
Total Capital and Liabilities 44,310.06 30,236.09 19,756.50
ASSETS
Cash and Balances with Reserve Bank of
India
2,837.07 6,012.07 810.29
Balances with Banks Money at Call and
Short Notice
2,673.52 1,352.93 2,363.11
Investments 8,371.94 5,516.49 3,758.03
Advances 29,713.04 16,839.08 12,437.55
Fixed Assets 238.13 251.79 237.23
Other Assets 476.37 263.74 150.29
Total Assets 44,310.06 30,236.09 19,756.50

20. Profit and Loss
Cash Flow Statement
Mar 18 Mar 17 Mar 16
Net Profit/Loss Before Extraordinary
Items And Tax
2,055.90 1,704.47 413.51
Net Cash Flow From Operating Activities -2,593.77 8,885.21 6,953.65
Net Cash Used In Investing Activities -2,241.63 -2,670.92 -3,718.24
Net Cash Used From Financing Activities 2,846.00 -2,022.71 -3,722.64
Net Inc/Dec In Cash And Cash
Equivalents
-1,989.40 4,191.59 2,773.14
Cash And Cash Equivalents Begin of Year 7,364.73 3,173.15 400.01
Cash And Cash Equivalents End Of Year 5,375.33 7,364.74 3,173.15
Mar 18 Mar 17 Mar 16
INCOME
Interest / Discount on Advances / Bills 3,823.60 3,121.42 1,282.79
Income from Investments 490.02 428.05 131.20
Interest on Balance with RBI and Other
Inter-Bank funds
141.61 79.03 56.67
Others 347.06 280.21 110.71
Total Interest Earned 4,802.30 3,908.71 1,581.36
Other Income 706.18 411.41 149.89
Total Income 5,508.48 4,320.12 1,731.25
EXPENDITURE
Interest Expended 1,770.06 1,505.21 648.53
Payments to and Provisions for
Employees
687.98 545.57 325.08
Depreciation 85.92 66.85 35.77
Operating Expenses (excludes Employee
Cost & Depreciation)
534.41 409.58 255.07
Total Operating Expenses 1,308.31 1,022.01 615.92
Provision Towards Income Tax 777.58 625.18 169.54
Provision Towards Deferred Tax -67.24 -32.66 -31.28
Other Provisions and Contingencies 374.21 88.44 53.30
Total Provisions and Contingencies 1,084.55 680.96 191.56
Total Expenditure 4,162.92 3,208.17 1,456.01
Net Profit / Loss for The Year 1,345.56 1,111.95 275.25
Net Profit / Loss After EI & Prior Year
Items
1,345.56 1,111.95 275.25
Profit / Loss Brought Forward 1,048.43 215.38 0.58
Transferred on Amalgamation 0.00 0.00 0.00
Total Profit / Loss available for
Appropriations
2,393.99 1,327.33 275.82

21. Peer Comparision
Peer Company P/B CASA% NNPA% GNPA% NIM
HDFC Bank 4.97 43.50 0.40 1.30 4.04
Equitas Small Finance 2.60 5.00 1.80 3.53 5.99
Ujjivan 1.85 3.70 0.70 3.60 9.45
Kotak Bank 5.80 51.00 0.98 2.00 3.94
AU Small Finance 7.86 32.00 1.30 2.00 5.20
SBI 1.23 45.70 5.73 10.91 2.47
Bharat Fin 4.92 - 0.10 4.10 7.86
IDFC Bank 0.85 11.80 1.69 3.31 1.60
Bandhan Bank 5.29 35.46 0.64 1.26 10.10
Average 4.12 - 1.48 3.56 -
Peer Company ROE ROA CAR C/I P/E
HDFC Bank 18.43 1.86 14.80 41.00 28.00
Equitas Small Finance 7.64 1.78 35.51 65.00 130.00
Ujjivan 0.48 0.15 23.04 67.05 -
Kotak Bank 13.50 2.00 18.20 61.35 53.76
AU Small Finance 13.76 2.04 19.31 56.65 59.05
SBI -2.16 -0.12 12.60 60.13 -
Bharat Fin 17.00 4.15 33.20 50.40 23.12
IDFC Bank 6.38 0.81 18.00 58.11 20.55
Bandhan Bank 19.92 4.49 32.61 34.25 30
Average 10.5 1.82 - - 40

22. Outlook
Bandhan Bank is trading at above average Price multiples when compared
with peers. However, we feel that it commands premium because of :-
 Bandhan Bank has lesser NPA’s when compared with it’s peers.
 It has more ROE and ROA ratio when compared with other Banks and MFI’s in the
peer.
 It has highest NIM when compared with it’s peers.
 AUM has grown at a CAGR of 44% over last 2 years and it is expected to grow at at
least 38% for the upcoming 3 years. This robust growth in AUM also supports the
premium demanded by the company.
 NII has grown at a CAGR of 80% over last 2 years. Even if we consider half the
growth rate, a 40% growth in AUM is also impressive.
 PAT of the company has grown at a CAGR of 121% over last 2 years. Again, even at
conservative growth in PAT over upcoming years, the Bank seems to have decent PAT
margins.
 On the deposit front, the book has grown from zero as of August 23, 2015 to 33869
crore as on FY18.
Conclusion
Bandhan , a Bank with high and sustainable Return on Equity and Return on Assets
metrics, Low Non-Performing assets, higher NIM, decent CASA ratio, low Cost to Income
Ratio, seems to be a good investment opportunity.
At this point of time, I believe that the fundamentals of the company will improve even
as the bank moves into a mature stage of operations.
I believe Bandhan remains a strong compounding story with a play on vast rural
opportunity, with best-in-class return metrics and strong operating efficiency. Bandhan
will continue to trade at premium valuations as investors acknowledge the structural
growth opportunity and sustainability of return metrics.

23. Source(s)
https://www.bandhanbank.com/pdf/Annual-Report-FY-17-18.pdf
https://www.bandhanbank.com/pdf/Earnings-Call-Trascript-BandhanBank-Q1-FY-201
8-19.pdf
https://www.ibef.org/industry/banking-india.aspx
https://www.mckinsey.com/featured-insights/india/mastering-the-new-realities-of-in
dias-banking-sector
https://economictimes.indiatimes.com/bandhan-bank-ltd/quarterly/companyid-6766
5.cms
https://www.livemint.com/Money/rG4AeI1cDItQNSVtuVxdiN/Bandhan-Bank-posts-4
75-rise-in-Q1-net-profit.html
https://www.goldmansachs.com/worldwide/india/ipo/bandhan-bank-drhp.pdf
Disclaimer
No recommendations are given for the company discussed in the
report. Any valuation discussed in the report is solely for
informational reasons and not to be taken as investment
recommendation. I do not hold any shares of the company,
neither I am beneficiary to any of the shares of the company.
Please consult your Financial Adviser, or do your own due
diligence before making any Investment decision.
Authored By - NIKHIL BHAUWALA
nikhilbhauwala@yahoo.com
Guided By - Mr. JIMIT ZAVERI
- Mr. TEJAS JARIWALA
Research Head - Mr. TEJAS JARIWALA