Bandhan Bank's Q2 Profit Drops Sharply Amidst Increased Loan Defaults and Slowdown in Microfinance Growth

Bandhan Bank's financial performance in the second quarter of the current financial year showed a substantial downturn, with its post-tax profit plummeting to ₹112 crore, a steep decline from ₹937 crore recorded in the corresponding quarter of the previous year. The bank's Net Interest Income (NII) also saw a reduction, standing at ₹2,589 crore compared to ₹2,934 crore year-on-year.

Partha Pratim Sengupta, Managing Director and CEO of Bandhan Bank, explained that the weaker-than-expected results were primarily due to a combination of factors. The proactive passing on of a 75-basis-point repo rate cut to customers in Q2 has temporarily impacted the bank's margins. However, Sengupta anticipates improved margins and profitability as deposits are repriced over the coming quarters, leading to lower funding costs.

Elevated slippages, indicating an increase in non-performing loans, were noted, particularly within the microfinance segment. While anticipated to correct, these stresses are expected to persist for another one to two months. Furthermore, growth in the microfinance (EEB) portfolio remains subdued because the full effect of industry-wide regulations is taking longer to materialize than expected. The CEO added that most of the loan growth occurred late in the quarter, contributing minimally to the quarter's profit and loss.

Impact This news is likely to negatively impact Bandhan Bank's stock price in the short term due to the significant profit drop and persistent asset quality concerns. It may also lead to increased scrutiny of other banks with substantial exposure to the microfinance sector. Rating: 7/10

Difficult Terms: * **Post-tax profit**: The profit remaining after all taxes have been deducted. * **Net interest income (NII)**: The difference between the interest income a bank generates from its lending activities and the interest it pays out to depositors. It is a primary indicator of a bank's profitability. * **Slippages**: Loans that were performing but have deteriorated to a point where repayment is doubtful, indicating increased credit risk. * **Microfinance advances**: Loans provided to low-income individuals and small businesses who typically lack access to conventional banking services. * **Repo cut**: A reduction in the benchmark interest rate (repo rate) by the central bank, making borrowing cheaper for commercial banks. * **Margins**: The difference between a company's revenue and its expenses, reflecting its profitability. For banks, Net Interest Margin is a key metric. * **Repricing of deposits**: Adjusting the interest rates on deposits to align with current market conditions. When rates fall, banks can offer lower rates on new or maturing deposits. * **Funding costs**: The expenses a bank incurs to obtain capital, such as the interest paid on customer deposits and borrowings. * **EEB segment**: Refers to a specific segment or category within Bandhan Bank's microfinance operations, likely standing for 'Eastern region' or a specific product offering. * **Industry-level guardrails**: Regulatory or self-imposed measures implemented across the entire industry to manage risks, ensure stability, or guide growth. * **Advances**: Loans and credit facilities extended by a bank to its customers.