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Bandhan was set up in 2001 as a not-for-profit entity with the objective of financial inclusion and women empowerment through sustainable livelihood creation. It started its microfinance operations from Bagnan, a small village, about 60 km from Kolkata. The model followed for delivery of microfinance services was individual lending through group formation. Bandhan focused on serving underbanked and underpenetrated markets. [5]

In April 2014, Bandhan received an in-principle approval from the Reserve Bank of India (RBI).[7] On June 17, 2015, RBI granted the banking licence to Bandhan, making it the first-ever microfinance institution to become a universal bank in India. [8]

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Bandhan Bank through its network of 6,140 banking outlets[3] is spread across metro, urban, semi-urban and rural India. The key focus areas are micro-entrepreneurs, MSME segment, housing finance and retail assets. 84.5% of the Bank's deposits are in the retail segment, thus, granular in nature.

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With over 1621 branches and a 3 crore user base across India, the bank has been able to expand its portfolio but the trust of investors remains elusive. A large part of its business is dependent on loan disbursals in West Bengal and the northeast region. It is this dependence which has hurt the institution at a time when microfinance institutions have been able to recover some lost ground.

According to the 2022-23 annual report, the bank had 42 per cent of total banking outlets in the eastern region. As of March 2023, Bandhan Bank had 533 branches in West Bengal, 96 in Assam, 28 in Tripura, and 9 in the remaining five north eastern states.

Abhishek Jain, Head of Research at Arihant Capital, said that during the Covid-19 pandemic, the asset quality of Bandhan Bank fell sharply which impacted their earnings significantly. The bank reported Gross NPAs (non-performing assets) of 6.81 per cent in FY21 up from 1.48 per cent in FY20. The net NPA increased to 3.51 per cent in FY21 from 0.58 per cent in FY20

Realising the concerns of its investors and the factors weighing down on the bank, the Kolkata-based bank has been improving its books through aggressive write-offs. In December 2022, the bank sold its stressed loan worth Rs 8,897 crore for Rs 801 crore to Asset Reconstruction Company (ARC). It was the first instance for the lender.

In July this year, the Kolkata-based bank had invited offers from asset reconstruction companies for its Rs 500-crore distressed loan portfolio to reduce the share of bad loans, according to a report by Economic Times. Bandhan Bank had proposed to sell a portfolio of home loans consisting of around 5,800 accounts, with an aggregate principal loan book of approx Rs 500 crore, as per the report.

The bank has attempted to address the concerns of the investors through several measures. The latest Q2 results showed some green signs for the institution. In its latest business update, the bank reported a net profit of Rs 721.20 crore in the July-September quarter of the ongoing fiscal, up 244 per cent YoY, from Rs 209.3 crore in the corresponding quarter last year.

In terms of business volume for the legacy microloans business, Assam was the second largest market for many years but in FY23 Uttar Pradesh and Bihar overtook Assam, hinting further at the desired geographical diversification agenda, the report adds. But analysts still worry about the asset quality of the bank. Its gross non-performing asset (GNPA) increased by 14.8 per cent YoY. In absolute terms, gross NPA stood at Rs 7,874 crore in the July-September quarter, compared to Rs 6,854 crore in a year-ago period.

Moreover, the net NPA ratio stood at 40 per cent YoY in the September quarter. The net NPA was at Rs 2,366 crore, as compared to Rs 1,679 crore in the year-ago period. Analysts have raised concerns over the continuous decline in asset quality. According to a Kotak Institutional Equities report, the key concern on improvement in asset quality is still not addressed by the bank. Bandhan Bank remains one of the few players where this issue has persisted for a much longer period than other players in the space.

For FY24, the bank expects credit growth of 20 per cent, with the majority of the growth expected in the latter half of the year. It expects the collection efficiency to remain steady at 98 per cent. According to Kaushik, Bandhan Bank can boost its financials and overall company prospects by diversifying its portfolio by focusing on both retail and industrial sectors.

Bandhan Bank's over 3 times surge in September quarter net profit failed to impress the Street. Net interest income (NII) missed analyst estimates while a moderation in asset quality raised concerns, even as the management stayed optimistic on prospects of the remaining quarters of FY24. Brokerage Motilal Oswal has cut its FY24 and FY25 profit estimates for the private bank by 3-5 per cent. Nuvama Institutional Equities has, in fact, slashed its earnings per share estimate for FY24 by 14 per cent and FY25 by 5 per cent.

While the bank has suggested for strong recovery in loan growth and asset quality over a seasonally strong second half of the ongoing financial year, Motilal Oswal said it continues to remain watchful of asset quality and the potential recovery from CGFMU and ECLGS.

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Non-Interest income or other incomes are very important for banks as it gives a regular source of income for bank with no additional risk. Other income of Bandhan Bank decreased and is currently at Rs 2468.5507 Cr. 2351a5e196