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Why Bandhan Bank share price is Falling?

The Assam Micro Finance Bill and the latest Quarter results has added more pains on the Bank.

The Bandhan Bank, the private lender reported its net profit at Rs 633 crore as against Rs 731 crore for the year ago period. On Thursday shares of Bandhan Bank fell over 5% , this happened just after the lender has declared 13.5%  decline in in net profit.

The bank’s operating profit rose above 50% at Rs 1914 crore from Rs 1264 crore a year back while net interest margin improved to 8.3% from 7.9%. Bank’s  deposit book grew 30% year-on-year to  71,188 crore while advances grew 23%.

 

 

Higher provisions to cover risk (of non-repayment of loans) led to a 13.5% fall in Bandhan bank’s net profit for the December quarter making investors panic.

The gross non-performing assets (GNPA) ratio improved to 1.1% as against 1.9% three months back.  But it could have been much higher at 7.12% had it classified defaulting accounts as NPA. The Supreme Court put a stay on NPA classification for accounts which were not classified as NPA before August 31, 2020, to provide relief to stressed borrowers amid pandemic. In normal Scenario, banks classify borrower accounts as NPA after 90 days of default.

Total provision for the quarter ended was at rupees 1068 crore, than Rs 295 crore it had provided in the year ago period (Almost 3x rise). The bank’s collection efficiency improved to 92% from 89% during the period.

The collection efficiency however fell to 78% in Assam in the last 2 weeks  from 88% at the end of December after both Congress and the ruling BJP announced micro loan waiver after the new government formation Assam .As we know, Assam contributes about 8% of Bandhan Bank’s total advances 80255 crore.

Assam Micro Finance Bill and Bandhan bank

Bandhan Bank is among the Banks who have felt the real heat of Assam Micro Finance Bill. This Bill lead to the GNPA to rose up to 7%. The lender witnessed a 10-percentage point contraction in collection efficiency between the December quarter and 1-16 January, to 78%. The Collection has dipped in West Bengal as well (as per latest reports).

Assam state  government recently passed a law called – The Assam Microfinance Institutions (Regulation of Moneylending) Bill, 2020. It happened following a series of reports of coercive lending. This Bill is mainly intended to contain Over leveraging of MFI borrowers and to control the coercive collection practices by the Lenders.

The new bill includes the following

  • Restriction on the deployment of collection agents.
  • The coercive collection practices and door-to-door collection, collection from borrowers only at gram panchayat office or designated places suggested by the concerned Government Authorities.
  • No more than two lenders per borrower

These rules have affected the microlenders who say compliance to these norms is difficult.

As per reports, Assam has nearly 45+ micro finance lenders with a portfolio of Rs12,000 crore, of which Bandhan Bank accounts for 55%, followed by Arohan Financial Services at 8%, Ujjivan Financial Services and Satin Creditcare at 3% each, with the remaining being held by other small players.

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