Kesh emphasised the bank’s strengthened ability to attract deposits through its extensive network of over 1,700 branches and innovative product offerings, particularly in transaction banking, in an interview with CNBC TV-18 on Monday.
He expressed confidence that deposit growth will outpace advances, with a projected growth rate of approximately 18%. Consequently, he anticipates a continued decline in the credit-deposit (CD) ratio, aiming to maintain it below 90% by year-end, despite current macroeconomic uncertainties.
In Q2 FY25, the bank achieved a 30% year-on-year (YoY) increase in net profit, totaling ₹937.4 crore. The net interest income reached ₹2,948 crore, while assets under management stood at ₹1.30 lakh crore.
Read the verbatim transcript of the interview.
Q: What can you tell us right now in terms of how you are looking at the second half, how credit costs will play out and what you are expecting in terms of the NPL movement as well?
A: Our quarterly numbers are, in the context, I would say it’s a decent set of numbers. And specifically on credit quality, if you see the DPD pool has inched up, we have fresh slippages at ₹1,100 crore odd and gone up from ₹900 crore odd level. But what we see is that given the microfinance space and microfinance continues to be a significant part of our current book, we expect the stress to continue in quarter three as well. But given the offtake and the positive input that we are seeing in collection efficiency in October, our belief is that by quarter four it should turn it around.
Therefore, if you see today, on a half-yearly basis, my credit cost remains in the range of 1.8%. Our credit card guidance of 1.8 to 2%, we are holding it as of now. Our belief is that if quarter four turns around for us, as also for the industry, we will be able to hold on to that but we will come back with more details as we see the quarter three end and then discuss more about it.
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Q: You said collection efficiency has improved. Can you tell us exactly how October panned out vis-a-vis September?
A: Collection efficiency for quarter two as well, for our largest constituent which is West Bengal, we are still at 99%, which is just about 10 basis point down from quarter one. And rest of the India, it has come down by one percentage point. But in quarter three, we are in October, you are already seeing 50 to 70 basis point improvement in the standard pool.
Of course, given that increased DPD pool that we have as of now, some of these will definitely flow through and therefore we are not isolated from the industry. Having said that, I think we will continue to do better and our credit cost guidance of 1.8 to 2%, we remain in that range as of now.
Q: Just the number for the standard pool, how much has it, you said 40 basis points it’s improved. What is the exact number?
A: We are at 98 plus to 99 range for pan-India. West Bengal continues to be very high for us, 99 plus. Even that also is improving week after week.
Q: Given the anticipated stress, you are saying credit costs are not increasing at this point in time. Provisioning was also down slightly, almost 5% year-on-year, marginal increase quarter-on-quarter. So what can you guide in terms of let us say expected slippages or expected stress in terms of gross NPA? Is there a year end number that perhaps you can look at right now?
A: Gross NPA has gone up from 4.2% to 4.5% already. And our belief is that the slippages will be a bit more elevated in quarter three. But with quarter four and some treatment that we expect to do, we will maintain in the range of 3.5% to 4% by end of the year as a gross NPA.
Now, while on the microfinance segment there are a bit of a stress, but I want to just decode that a little bit more specifically for our bank. You see overall pool that I have based on the latest graph, unique to Bandhan Bank customer in the microfinance side is roughly around 60%, Bandhan plus one is 80%, and Bandhan plus four and above, which is to me the most stressful segment for us is just about 4.5%.
So while at one point, I would say we are not isolated given the elevated stress in the industry, we will be impacted. But given the guardrails that we have been taking over the last 18 months or so, whole bunch of steps that we have been taking, we have been growing moderately over the last years, whereas probably the industry was growing significantly, and some of these would have reflected into over-leveraging, I would say we will still be better than the rest of the lot and headline gross NPA, we have some thoughts in mind. We will try and maintain it in the range of 4-4.5% at the end of the year.
Q: You had a strong deposit growth in this quarter, 7% sequential growth. Could you guide with respect to, what was the incremental cost of funds that you got in this quarter because your net interest margin dipped by 20 basis point on a sequential basis and would you continue to look at deposit growth at this level to bring down your overall credit to deposit ratio? So, any guidance on CD ratio that you are looking by the end of FY25?
A: As we have been demonstrating quarter-on-quarter strong ability to garner deposits, our deposits have grown by 27% and quarter-on-quarter it has gone up by 7%. Yes, there has been a bit of a stress in the liquidity, but our ability to garner deposits through the franchise that we have built 1,700 plus branches, after core transformation, some of the products that we have launched, and many more products are actually coming on the transaction banking side. So some of these coming through, some of the old branches we are re-energizing, the separate sales team created. I think our ability to garner deposit will continue to be up.
Our guidance is that we will grow our advances at 18% plus minus one, and deposit will grow faster than that. Therefore, CD ratio will continue to keep coming down. We are not giving a guidance at this stage, given the overall macro, but I think we will stay definitely in the range of below 90% by end of this year.
Q: Just one number, net interest margin (NIMs)?
A: So, net interest margin guidance is 7 to 7.5%.
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