Ladies and gentlemen, good day and welcome to Bandhan Bank Limited Q3 FY 2025 earnings conference call. As a reminder, all participants' lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Vikash Mundhra. Thank you, and over to you, sir.
Thank you, Sejal. Good evening, everyone, and a warm welcome to all the participants. It's our pleasure to welcome you all to discuss Bandhan Bank's business and financial performance for the quarter ending December 24. We appreciate your time and participation today. We will take this opportunity to provide insight into our operational activities, including any significant achievements or challenges. We'll also touch on market conditions, strategic initiatives, and any changes in our business environment. To discuss all this in detail, we have with us our MD and CEO, Mr. Partha Pratim Sengupta, Executive Director and Chief Operating Officer, Mr. Ratan Kumar Kesh, Executive Director and Chief Business Officer, Mr. Rajinder Kumar Babbar, Chief Financial Officer, Mr. Rajeev Mantri, and myself, Vikash Mundhra, Head of Investor Relations, along with other senior management team of the bank.
We'll be happy to provide you with any clarity required from the current quarter numbers and the way forward. Now, I would like to request our MD and CEO, Mr. Partha Pratim Sengupta, Sir to brief you all on the bank's performance. Over to you, sir.
Thank you, Vikash. A very good evening to you all, and wish you and your families all the very best for 2025. At the outset, let me welcome you to the Q3 earnings call of Bandhan Bank, and I look forward to regular interaction with you in the near future. First, let me apologize that I've suddenly developed a Bell's palsy on my face, so my words may get a little bit jumbled, so kindly excuse me for that. As you all are aware, even with the approval of the RBI, the board had approved my appointment as MD and CEO of the bank with effect from 1st November 2024 for a period of three years. Bandhan was born as a microfinance institution about 24 years ago.
It was an NGO at that time, later it evolved to an MFI, and then to a universal bank, and now is transitioning to a rapidly growing digital universal bank with a focus on enhancing customer experience. At this stage, let me first acknowledge the contribution of my predecessor, Mr. Chandra Shekhar Ghosh, the Founder of the bank, to Sri Ratan Kumar Kesh, who was the Interim CEO after Mr. Ghosh left, and the other executive director, Sri Rajinder Babbar, who is also the Chief Business Officer of the bank in managing the bank during the months prior to my appointment. It is my privilege to lead Bandhan Bank, and I am confident that together with my team, we will be committed to the execution of the Bandhan 2.0 strategy. Let me start by giving a brief on my background.
I have been a Probationary Officer in the State Bank of India and have been groomed in various fields, both in retail and corporate, and I rose up to the level of Deputy Managing Director and the Chief Credit Officer of the bank. From there, I was appointed as the Managing Director and Chief Executive Officer of Indian Overseas Bank, and now I have been appointed as the MD and CEO of Bandhan Bank. I'm proud of the team at Bandhan. We have the talent and the experience to deliver. As you may be aware, we have onboarded talent in the various verticals from the best institutions in banking, both private and public sector banks, and together with them, I'm confident that we will achieve the goal we have set for ourselves.
Needless to add, the success of any organization depends on its people, and I'm proud to say that in my experience over the last three months, I have seen a team which has the passion, commitment, and the zeal to deliver. Since the time I have been here, I have undertaken some few strategic decisions and would like to highlight them and just want to apprise you all that the steps that have been taken to help the bank further strengthen in its roots. The first one is the formation of a transformation management team. The dedicated transformation management team will be essential for driving innovation, improving operational efficiency, and ensuring the institution adapts to the fast-paced changes in technology, regulations, and customer expectations.
The Transformation Management Team will spearhead the integration of the digital tools and automation, streamlining processes to reduce costs and enhance customer experiences by implementing personalized services. Additionally, the transformation team will be tasked to foster a culture of compliance, agility, and continuous improvement by driving strategic change and aligning new technologies with business goals. The team would help the bank future-proof its operations and stay ahead of the industry trends. We have appointed a senior advisor, a reputed senior banker, to work with our team and share his wide experience in having driven transformation projects in a large commercial bank. The Transformation Management Office comprises a cross-functional team which will report to the Transformation Apex Committee , which will be chaired by me. The second one is the formation of the Digital and Transaction Excellence Unit.
The bank has created a Digital and Transaction Excellence Unit under the leadership of the Executive Director and Chief Operating Officer to enhance focus, efficiency, and expertise in managing transactions in transaction banking, payment solutions, and digital customer journey. It will also help in augmenting granular deposits and fee-based income through various transaction capabilities, payment products, and digital solutions. The DTU team will build expertise combining technical, functional, and commercial solutions catering to the corporate and consumer segment. The third one is the setting up of a Market I ntelligence Team. This team processes and synthesizes unstructured information in the public domain and outside on our commercial borrowers using generative artificial intelligence and large language models. This process helps in getting us a holistic view of the new applicants, develops awareness in case of early warning signals, and also facilitates taking appropriate risk mitigation steps whenever necessary.
It helps to gauge the sentiment about our SME and corporate borrowers on a near real-time basis. The next one is the setting up of a Credit Administration Department. This is a strategic step to oversee and strengthen the bank's credit processes and life cycle. This team will also handle areas like post-disbursement monitoring, NPA monitoring, review and improvement of underwriting standards, among others, also the entire bank's lending business across all verticals. This will help the bank's overall strategic alignment to enhance operational efficiency. I also want to take this opportunity to outline some of the key areas of focus that will guide our strategy and ensure we continue to deliver sustainable value for our stakeholders. Resilient liability franchise. The bank will have a strong focus on garnering stable granular retail deposits. As you will observe in Q3, our bulk deposits level has been marginally lower.
This has been a consensus effort. We will be endeavoring to drive deposit growth higher than the advanced growth to ensure long-term sustainability. We are confident of achieving this objective through leveraging our digital and branch network aided by cross-sell of deposits products across all of our all-asset teams. The second one is that to grow asset book with improved secure mix. The bank is focusing on a more secular approach on asset growth with focus on the secured mix. We will focus on products like home loan, gold loan, auto, and CV and CE, that is, the commercial vehicle and commercial equipment, secured book of commercial banking segment. We are also looking to build a strong MSME book as it has a huge potential. We endeavor to achieve a secured mix of 55% + by financial year 2027.
Growth in EEB book will also continue and wait at a relatively lower pace. The next is the risk governance and compliance. As career bankers, we understand the importance of risk and compliance. We are committed to embedding risk management and compliance into every aspect of our business. This means enhancing internal frameworks, adopting advanced tools for real-time monitoring, and fostering a mindset across all levels of the organization where accountability and integrity take center stage. Our focus is on being proactive rather than reactive, ensuring we stay ahead of potential risks while maintaining the highest level of governance. Enhancing customer experience. In today's world, customer is at the heart of everything we do. Our focus is on creating seamless, personalized, and meaningful interactions at every touchpoint. We are leveraging customer insights, design products, and services that meet evolving needs and expectations, ensuring a consistently superior experience.
While digital expansion remains a priority, we are equally committed to optimizing and expanding our branch network to stay closer to our customers. Improvement in asset quality. Asset quality continues to be a priority focus area. As we grow our loan book, we will continue to ensure that prudent underwriting standards and robust monitoring mechanisms guide every lending decision. Relentless focus by frontline and dedicated collection teams will drive improvement in asset quality through lower slippages and improved collections. Enhanced usage and adoption of analytics, along with the implementation of relevant technology tools, will aid us in improving loan origination quality and boost collections. Driving and improving efficiency. Bandhan has a strong employee base.
While we hire new talent, it is equally important to upskill and reskill the existing employees' base to enhance productivity and efficiency, for which the bank is investing in training and development, and also on cutting-edge technology and digital solutions. It is for the requirement of enhanced customer service and operational efficiencies. Let me now move to the quarterly performance of the bank. In recent times, the banking sector has faced tight liquidity conditions and an extremely competitive landscape for bank deposits. Further, in the current year, the microfinance sector has been facing headwinds and witnessing elevated risks in the portfolio quality. We continue to focus on building the liability franchise, and our growth in deposits exceeds the growth in advances. In this quarter, advances book was at INR 1.32 lakh crore with a Y-to-Y growth of 14%.
On the deposits side, deposits stands at INR 1.41 lakh crore with a Y-to-Y growth of 20%, which is higher than the advances growth. The degrowth over the last quarter in deposits is largely driven by the reduction in bulk deposits, which has been taken as a strategic decision. Our share of retail deposits, CASA plus retail term deposits, is now 69%. CASA deposits grew 6% Y-to-Y, with CASA level share is nearly 32%. We are making steady progress on our diversification agenda, whereby in this quarter, we have grown our secured books by 34% YoY improving the secured mix further to 49%. As we look ahead, we will continue with further diversification on the asset book through faster growth in secured advances and moderate growth in EEB advances.
As a result, with an increased share of secured advances, we would expect the NIMs to moderate in future to reflect the underlying risk without losing focus on the need to achieve our return on assets. The deposit market continued to be competitive, resulting in slightly higher cost of funds. This along with a faster change in product mix in favor of secured assets that has impacted yields, and together with higher opex led to the moderation of the rate to 6.9% in Q3 financial year 2025. However, on a nine-month FY 2025 basis, NIM still remains healthy and stable at 7.3%. Net total income in Q3 FY 2025 was INR 3,926 crore, an increase of 28% Y-to-Y. This includes one-off gain of INR 538 crore on account of CGFMU payout and INR 52 crore received from Assam government.
During the quarter, we also had a few one-offs, which our CFO Rajeev will explain in detail. We are committed to focus on asset quality. While currently credit costs are a bit elevated, we stand by our endeavor to target lower credit costs over the next few quarters. So if you look at the nine-month performance, the credit cost has come to 2.8%. Net NPA level is at 1.3%. Gross NPA level is at 4.7%, and we have technical write-off of INR 1,266 crore during the quarter. The PCR, including the write-off, is at 85% versus 70% a year back. In Q3 financial year 2025, the bank reported a PAT of INR 426 crore, and nine-month financial year 2025, the PAT is at INR 2,427 crore, a growth of 12% Y o Y.
On a nine-month financial year 2025 basis, we reported an annualized ROA of 1.8% and ROE of 14%, which we believe is comfortable considering the elevated stress in the microfinance segment. In a nutshell, I would say we have had a tough quarter, but I would say it's the most challenging quarter. But given the guardrails and efficiencies we have built into our operations, I am confident we will make significant strides in achieving the targets set in the Bandhan 2.0 strategy. I now hand over to Rajeev Mantri, CFO, to take you through the details of the Q3 financials. Thank you.
Thank you, Partha sir, and welcome everyone to the earnings call. Before I deep dive into the business numbers, let me begin highlighting the few one-offs that we had during the quarter.
In the non-interest income, we had two one-offs, which had a positive impact on our overall P&L. Firstly, we received the claim payout from CGFMU, which stands for Credit Guarantee Fund for Micro Units, and the total income booked on account of the same is INR 538 crore, which was accounted as part of the income in this quarter. Second, we received a net amount of INR 52 crore against microfinance loans from the Assam government under the Assam Relief Scheme. In the provision line item, we had two one-offs.
First, we did a technical write-off of INR 1,266 crore in the EEB portfolio, as a result of which an incremental provision of INR 336 crore was made during the quarter. Second, there is a provision of INR 30 crore relating to non-banking assets, which also was done during the quarter. And last one-off was relating to the staff expenses, wherein we had a one-off of INR 166 crore on account of change in accounting policy with respect to ESOPs, Employee Stock Option Plans. We do not foresee any such material costs in the near future for the same. With that, let us move to the business numbers for the quarter, starting with advances. As of December 2024, gross advances stood at INR 1.32 lakh crore, a growth of 14% year-on-year and 1% quarter-on-quarter.
However, if we adjust for the INR 1,266 crore of write-off done during the quarter, growth in gross advances would have been higher at 15% year-on-year and 2% quarter-on-quarter, respectively. In line with the strategic plan of product diversification, the focus is on growing the share of secured book, such as housing, commercial banking, and secured retail products. During the quarter, growth in advances was primarily supported by growth in the secured asset books, which grew by 34% year-on-year. Our secured book now constitutes nearly 49% of total advances. During the quarter, EEB portfolio witnessed a decline of 3% year-on-year and 5% quarter-on-quarter at INR 56,118 crore, as a result of portfolio controls in the wake of elevated risks in the industry. However, if we adjust for the write-off, EEB book would have been largely flat on a year-on-year basis.
Growth in the non-EEB book, representing 58% of advances, was strong at 30% year-on-year and 6% sequentially. This was contributed by retail assets, which grew at 95% year-on-year, commercial banking assets, which grew 38% year-on-year, and housing, which grew at 19% year-on-year, adjusting for the IBPC portfolio. Retail asset growth is driven largely by auto loans, commercial vehicle and equipment, and gold loans. From a business mix perspective, EEB group lending now constitutes 27% of the total advances, small business and agri loans at 15%, commercial banking 26%, housing 25%, and retail assets 7%, respectively. The bank has also made good progress on geographical diversification, whereby a share of advances in the East and Northeast regions have reduced by 14% from around 53% in FY 2022 to 39% by this quarter.
And it has increased in North, West, and South regions by 3%, 3%, and 7%, respectively, over the same period. The top five states, namely West Bengal, Maharashtra, Bihar, Gujarat, and Madhya Pradesh, contributed 59% of the gross advances. West Bengal contributed 23% of advances versus 25% in Q3 FY 2024. I'll move over to liabilities. As of December 31st, 2024, total deposits stood at INR 1.41 lakh crore, as against INR 1.17 lakh crore in the previous year, same quarter. A growth of 20%, which is higher than our advances growth. The bank continues to focus on granular and stable retail deposits. The total retail deposit, which is CASA plus retail term deposits, grew by 16% year-on-year, of which the growth in the retail term deposits was higher at 26% year-on-year. CASA deposits stood at INR 44,735 crore, which is increased by 6% year-on-year.
The growth is on the softer side, but it is largely in line with the industry trend we see on CASA. Within CASA, savings accounts have grown by 8% year-on-year, and the bank continues to focus on building relationships across its customer base, strengthen its value proposition, and garner new customers. The CASA ratio stands at 32%. Though the share of CASA has declined on a sequential basis, we have witnessed strong growth of 6% quarter-on-quarter in the retail term deposits, leading to an increase in the share of overall retail deposits, which stood at 69% versus 68% in the previous quarter. The top five states, namely West Bengal, Maharashtra, UP, Odisha, and Delhi, contributed 65% of total deposits. West Bengal contributed 40% of the deposits versus 42% a year ago, reflecting the reduced geographic concentration. I'll move over to collections and asset quality.
The bank's overall collection efficiency, excluding NPA, in Q3 FY 2025 was marginally lower at 97.6% as compared to 98.2% in Q2 FY 2025. For the EEB book, the collection efficiency, excluding NPA, in this quarter declined to 97.4% versus 98.1% in the previous quarter, reflecting the stress in MFI segment. Collection efficiency for the non-EEB book also declined to 98.3% in Q3 FY 2025 versus 98.7% in Q2 FY 2025. I would, however, mention that the collection efficiency in West Bengal and Assam have largely remained stable at 98.8% and 99.2%, respectively, over the last couple of quarters. We have, however, seen some deterioration in the rest of India EEB book from a collection efficiency perspective, from 97.2% in Q2 FY 2025 to 96.3% in Q3. On the asset quality front, the bank has seen incremental stress this quarter higher than expectation.
The gross slippages for this quarter were INR 1,621 crore. The increase was primarily in the EEB book, where it increased to INR 1,196 crore as compared to INR 752 crore in the previous quarter. Upgradation and recovery was also lower at INR 282 crore versus INR 304 crore in Q2 FY 2025, resulting in further increase in net slippages. The overall EEB DPD pool, which is SMA 0, 1, and 2, was at INR 2,118 crore, representing 3.8% versus 3.3% of EEB advances in the last quarter, and reflecting an absolute increase of INR 134 crore quarter-on-quarter. Within this, the SMA 1 and 2 buckets witnessed upticks. SMA 1 book increased by INR 98 crore from INR 563 crore, representing 0.9% in Q2 FY 2025, to INR 661 crore, representing 1.2%.
For SMA 2 book, it increased by INR 113 crore from INR 538 crore, which is 0.9% in the last quarter, to INR 651 crore, which is 1.2% in this quarter. We have, however, seen positive traction on the SMA 0 bucket, whereby the SMA 0 book has decreased by INR 77 crore from INR 883 crore, 1.5% in last quarter, to INR 806 crore, which represents 1.4% in this quarter. This is an early indication of the containment of movement from standard book to DPD book. While these are early days, we are working hard on the collection mechanism to enhance the overall portfolio quality of EEB book and will be very watchful of the risk which is there in the industry. Given the higher gross slippages and lower recoveries and upgrades, credit cost for this quarter was higher at 4.1%.
Excluding the impact of technical write-off, this would be at 3.1%. For the nine months ended December 2024, the credit cost was at 2.6%, and excluding the impact of the technical write-off, it would be at 2.2%. Gross NPA ratio, as at the end of December 2024, was 4.7%. Net NPA was 1.3%, and PCR, excluding write-off, was 73.5%, and including the write-offs, was 85.4%. I'll move to the profitability. Coming to the quarterly P&L, NII at INR 2,830 crore grew by 12% year-on-year. Sequentially, there was a decline of 4%, and that's primarily on account of the product mix change towards higher secured and the impact of higher slippages. Our net interest margin for the quarter was 6.9% compared to 7.4% in the previous quarter.
The sequential decline of 50 basis points in NIM is primarily contributed by the impact of the change in advances mix towards secured, as well as the higher slippages, as I mentioned. On a nine-month basis, the NIM was stable at 7.3%, which is within our guided range of 7%-7.5% for this financial year. Our net total income in Q3 was INR 3,926 crore, an increase of 28% year-on-year. This includes the one-off gain of INR 538 crore on account of CGFMU payout and INR 52 crore from the Assam government, as we highlighted earlier. Operating expenses grew by 35%. However, if we net out the impact of the ESOP accounting change of INR 166 crore, the year-on-year growth in expenses would be 23%. The increase in the expenses is a result of investment in technology, as well as growth in the volume growth for other than EEB business.
During the quarter, the operating expenses to average asset ratio was at 4.2%, and adjusted for the one-offs, this would stand at 3.8%. On a nine-month basis, the OpEx to asset ratio was 3.9%. Adjusted for one-offs, it would be 3.8%. Provisions during the quarter were INR 1,376 crore. As we mentioned earlier, this included one-offs relating to the technical write-off impact, which was 336 crore, and INR 30 crore pertaining to non-banking assets. We have been very prudent in making provisions on the EEB portfolio in view of the uncertainty and the stress we are seeing in the MFI sector. Overall, as a result, operating profit for the quarter was INR 2,021 crore, registering a growth of 22% year-on-year, and our net profit was INR 426 crore in the quarter compared to INR 733 crore in the Q3 FY 2024.
The lower profit is primarily on account of higher provisions due to the stress in the MFI portfolio and the impact of the technical write-offs that we had taken. Quickly moving on to the nine-month profitability. For the nine-month ended December 2024, NII was INR 8,784 crore, a growth of 18% year-on-year. Net total income was INR 11,002 crore, a growth of 23% year-on-year, and operating profit at INR 5,817 crore, a growth of 21% year-on-year. The bank reported a net profit of INR 2,427 crore in nine months FY 2025 compared to INR 2,175 crore in nine months, which represented a 12% year-on-year growth. Return on assets was at 1.8%, and return on equity was 13.8% for the nine months on an annualized basis. Lastly, on capital adequacy, the CRAR was at 16.1%, including the profit for these nine months, and that increased from 15.6% in the last quarter.
On behalf of the management team, I would once again thank you all for participating in this call, and we can now open up for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Hardik Shah from ICICI Securities. Please go ahead.
Yeah, hi. Good evening and congratulations, sir, on your appointment and heading this bank. I have a few questions, sir. First, I think in your opening remarks, you mentioned that EEB share, sorry, you mentioned that secured share will rise from currently 49% to 55% +. So point well taken, sir. Just wanted to check how would you view the share of EEB because I think in your unsecured, you have some proportion of the retail unsecured also. So just wanted to check by FY 2027 end or maybe FY 2026 end, how do you see the EEB share?
So let me tell you, as a strategy, we are now going secular on all the areas. So our, I would say, the focus will be equally on the other segments, that is the housing loan segment, the retail segment, and especially on the gold loans and also on the commercial loans and the MSMEs. So EEB, one thing just I want to tell you that EEB always has been the asset of the bank and will continue to be an asset. But if I grow, say, 1x in EEB, I will grow 3x in the other segments. So that is our very clear-cut strategy, and accordingly, we have framed it. And today, if you look at our figures also, we have already increased our secured percentage from 42% to 49%. So if we continue with this trend only, this 55% percentage what we are focusing will be achieved.
Right. So sir, I mean, 49% going to 55% +, this is a straight away reduction in the EEB book, right? I mean, assuming the retail unsecured will.
I can make it clear. It is not a reduction in the EEB book quantum-wise. It is a percentage growth in the other segments much higher than the EEB growth. So that's what I say. If I grow 100 in EEB, I will grow 300 in the other segments.
Yeah. Just to supplement, what we are saying is that EEB book will also grow, but at a more moderate pace, and a secured book will grow at a much faster pace, and as a result of it, the mix will increase for the secured book.
Right. Okay. And sir, secondly, on MFI disbursement, right? So usually, the fourth quarter continues to be very strong in terms of disbursement. And this year, of course, the situation is very different. How would you look at the disbursement for the current quarter, I mean, Q4? Should it be, I mean, how would you look at that?
No, so definitely, it will not be as aggressive as we have done it in the past. It would be moderated. And we have already, because of the increase in the delinquencies, because of, I would say, the increase in the slippages, we have put in some guardrails. So since the guardrails have already been implemented, this will obviously lead to some moderation. So in the current year, the disbursement should be much more moderated, and definitely, it would be not at the same level as we have done in the last year.
Would there be an improvement on the quarter too?
Just to add, Hardik, having said that, since EEB, by and large, quarter four is the largest quarter for us in terms of disbursement, we are expecting a sizable amount of renewals. There are also, as we said, we will implement the guardrails, but the numbers will obviously be available for us to renewal for the good quality customer borrowers.
Yeah. We'll be very calibrated in the strategy on how to grow on the EEB, considering the risk in the segment.
Right. But sir, it should still be better versus 3Q, right, wherein we have done some INR 12,000 crores.
So it is, yeah, definitely, because as the MD sir has said, we are going for a balanced growth as compared to the EEB that's going to move faster. So definitely, we will disburse in the EEB book in this quarter. And we are expecting a little growth, but not as compared with the last year.
Right. Sir, on MFI slippages, right, EEB slippages, so we have seen some improvement in SMA 0, but SMA 1 plus 2 is more or less stable. How should we look at the MFI slippages in Q4 and maybe Q1 when tighter guardrails come into picture? So would you be—I mean, would it be fair to assume maybe the similar forward flow from SMA to NPA till the time we get more comfortable in the external environment, or do you think we have reached to a level wherein SMA to NPA should start seeing some improvement?
So let me tell you that slippages still is a matter of concern. So maybe the level of slippages would not be 1,196, what we have witnessed in Q3, but it will be substantial. So the thing is that not much improvement in the slippages. It may not be INR 1,200 crore, maybe close to INR 1,000 or maybe like that. But slippages, we are seeing that trend. But at the same time, as you are witnessing, you see our SMA 0 book is improving. So the towards delinquency, that percentage is coming down. But those which have already slipped to SMA 2, likely chance that most of them would actually be slipping. Likely chance is that because we have also put some guardrails whereby these borrowers may not get an additional finance at least from us. So there are chances. So we are taking that calculated risk.
But the trend is reversing. That trend is also we are witnessing. So we are expecting Q1 of next financial year would be probably a much, much. We will witness a much, much lower slippage.
Yeah. I think just to supplement, as MD sir mentioned, the SMA 0 bucket, we've seen slight improvement. Having said which, I think the risk in the industry does continue. So that will have an impact like we've seen this quarter. So I think that impact would come through. And I will be continuously monitoring how the DPD buckets actually move.
Sure, sir. Last question, sir, on OpEx. So if I adjust this ESOP adjustment, even then the OpEx growth will be around 22% roughly, which is clearly higher than the loan growth and maybe NII, maybe the top line growth. Given the phase where we are in terms of capacity building and investment, this OpEx growth will continue to dominate maybe this adjusted level of 20%-22% and higher than loan growth. Will that be a fair assumption?
So, [audio distortion].
Hello. Am I audible?
Hello. Congratulations for your appointment. So I wanted to know the average maturity of our EEB portfolio.
Maturity on?
Of EEB portfolio.
So it is mainly two years. Maximum is two years and average is around 18 months. So it varies from one year to two years.
Okay. And if we refer to the slide, which is Bandhan Plus 2 and 3, so is it a percentage of borrowers or is it a percentage of our AUM?
The percentage of AUM.
Okay. Okay. And lastly, on the yield side, so what is our yield on the EEB book? I mean, what yield do we operate at?
The disbursement yield is 22.95%.
Okay. And are we seeing any downward revision in terms of the yield currently?
22.95% at the time of the disbursement, yes. On average, the yield for the quarter was about 20.3%. Yes.
Okay. On a two-to-three-year basis, we are going to shift our portfolio from unsecured to secured. Along with that, the MFI yields also are going to get depressed due to the guardrail rule coming up. So how are we looking at our NIMs shaping up in the next two to three years? Because most probably, it will take a hit.
Y es. So you see, none of the universal banks give such a high. I think Bandhan, the current level of NIM also 7.3% is not for a Universal Bank. So we have to accept that, number one. Number two is that as we go more secured and we do more secure business, this NIM is definitely going to be moderated. So that trend is also visible right now also, 7.3%. So it has come down to 6.9% during the quarter.
So that will be a little bit more moderated in the coming quarters, no doubt on it. But again, having said so, our focus is to see that our ROA remains as close to 2%. That is our focus. So that will be achieved through more quantum of business. So we have to increase our liability size, and at the same time, we need to increase our asset size. So that will only give us the and also control the slippages. So these three steps actually will give me an ROA of around 2%. So that's what we are aiming. The NIM, if you look, I would say as an individual item, yes, it is definitely going to be moderated in the future months.
Got it. That was helpful. Thank you.
Thank you. Ladies and gentlemen, before we take the next question, a reminder to all the participants that you may press star and one to ask a question. The first question is from the line of Roshni from CLSA. Please go ahead.
Hello, team. Good evening. Thank you so much for the opportunity to let me ask a question. I just wanted to understand that you mentioned putting in some guardrails. I just wanted to check if we are currently aligned with the two plus one member rule in MFI, or is that something that's going to come in for us from April 1st onwards?
So the industry is still doing three plus one, but we are doing two plus one. So that is one. Ours is a little bit tougher than the industry. Number two is that the industry is giving a DPD of 60 days, whereas we are taking it as a 30 days. So we are not giving any loan to a borrower who has a record of a 30-day DPD. So these are some of the things. Apart from that, we align in the industry that the indebtedness of a borrower from all sources, including unsecured loans, should be 2 lakhs. So the cap is kept at INR 2 lakhs. So these are the guardrails already imposed, which will definitely moderate, and it will only give us good quality of advances. That much I can say.
Roshni, if you look at page 21 of the investor deck, we have mentioned that based on the scrub of our portfolio, almost 92% of our portfolio of EEB is Bandhan Plus 2 . Yes. As a policy, we always follow that. But after taking loan from us, some people can go to other lenders and take a loan. And that's what reflects what the other portion could be. But it is just less than about 8%, which is greater than Bandhan Plus 2.
Understood. Thank you so much. And if you could just mention what the interest reversal for this quarter has been like?
Interest reversal? Do you have any data?
Roshni, we'll come back on that point.
We'll come back.
Okay. Thank you so much.
One minute. One minute. I think we have because there is a slippage.
Yeah, so the interest reversal for the quarter was around INR 69 crores.
All right. Thank you so much. Thank you so much.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Vinayak Agarwal from Jefferies. Please go ahead.
Thank you for the opportunity, and congratulations on your appointment. I have two questions, sir. So you mentioned that the share of secured loans will continue to inch up from current levels of 40%-55%, and NIMs, as a result, will modulate. Could you also comment on how this will impact credit cost in the FY 2025? [audio distortion].
Credit cost has very little to do with the secured or unsecured advances. Credit cost is more dependent on two factors. One is your total advances and the loan loss provision, so we are very clear that we want a growth in the asset portfolio, so maybe it may be in the form of secured assets, but we want a growth in the asset portfolio and number two, we want a reduction in the slippages, so if we can achieve a reduction in slippages, our provisions for loan loss will also come down, so that will definitely improve our credit cost, so we have an internal target of achieving a credit cost of 2%. That's where we are now working at it.
Secondly, sir, i f you look at the collection efficiency, we've seen a dip for the month of December versus September. Could you please explain what is driving this and what's your outlook here? That would be my questions.
So I think that the collection dip that happened in quarter three as compared to quarter two was marginal, specifically in certain geographies of UP, Tamil Nadu, Maharashtra, and Gujarat for us. But what we have seen is in the month of January, the collection efficiencies have been better in comparison to December month. So you will see that SMA 0 also came down in the month of December, and that traction is also happening in the month of January, what we've seen. So like we said, what we see in terms of going forward, the collections will start slowly picking up, and the bucket delinquencies will come down in due course of time.
Vinayak, just on your previous question, as we see this stabilizing, the microfinance industry here, our credit cost expectation in the near future would be around 2% overall for the portfolio. By FY 2027, with the shift in secured, I think we expect it to be between 1.5%-1.6%.
Thank you. A reminder to all the participants that you may press star and one to ask a question. The next question is from the line of Jayaprakash from L&T. Please go ahead.
Is it audible?
Yes, sir, you're audible.
Thank you so much . So as long as all that current scenario, as per current scenario, this Karnataka ordinance has to be come out now. So today and tomorrow, I think probably we'll get the blueprint of that. But the scenario, what is happening with me? So have you taken some precautions or have taken some steps towards that, how to tackle this?
If you just look at it, our Karnataka portfolio is only INR 740 crores out of a total EEB portfolio of INR 56,000 crores, which is very, very small, and only 13% of which is now delinquent. It is more or less, as we have been telling, that what is happening in the rest of India, apart from Bengal and Assam, the trend is almost in line with that. We do not perceive any major risk on account of the legislation that may come. We will wait for the legislation is coming. As of now, because our portfolio is very, very little, it is only INR 740 crores out of INR 56,000. The delinquency trend is more in line with whatever is happening in the rest of the country. We are not very much concerned about it. But nevertheless, we will definitely look at what are the legislations, what are the terms of the legislations, what it is coming, and how it is going to impact us.
To supplement what I can add, that the legislation is mainly towards unregulated REs, and whatever comes for the regulated REs, obviously, we'll adopt that. Our portfolio is much smaller there, and what we have done as a proactive measure is to prioritize ensuring that we work towards protecting our portfolio and looking at stalling the growth if need be so, but look at ensuring the portfolio is protected. Out of the INR 740 crores, the group lending piece is only INR 400 crores. Only INR 400 crores.
Group lending is INR 400 crores.
Microfinance, by definition, is only INR 400 crores.
Thank you.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Punit from Macquarie Capital. Please go ahead.
Yeah. Hi. Thanks for taking my question. Just wanted to know how much are there from the EEB book? Like if you could give comparison between Q2 and Q3.
INR 1,196 crores is from the EEB book. Yeah. Yeah. So the slippages in the EEB, which is group plus SBAL, both is INR 1,196 crores in this quarter a nd in the last quarter, which is Q2 FY 2025 was INR 752 crores.
Also, sir, your SMA 0 has declined, but your SMA 1, 2 has increased. So I just wanted to get some color on since the forward flows into the Stage 3 book has the Stage 3 peaked. What are you seeing? Like the credit cost, I know you guided for FY 2026 2%, but just for a Q4 guidance, do we see incremental slippages declining, especially from the EEB book? Any color on that?
We're seeing an incremental decline in the incremental slippage. No doubt on it for the data. But as I said, that the greatest support is that the SMA 0 book is declining. That means tendency towards delinquency is coming down. That is the greatest support for the data. SMA 2, I think, is a majority of them that we have already taken into account for the data. Going forward, again, from Q1, we expect the cycle to just go over, and the slippages will be much, much less.
Okay. Got it. That's it from my side. Thank you.
Thank you. A reminder to all the participants that you may press star and one to ask a question. Ladies and gentlemen, you may press star and one to ask a question. A reminder to all the participants that you may press star and one to ask a question. As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.
I'd like to thank all the investors and everyone who joined this call and would like MD s ir to say something.
Yeah. So this was my first investors call after taking over the charge of MD and CEO of Bandhan Bank. Thank you all for participating. And to all the investors, I can assure that Bandhan will continue to grow from strength to strength. Thank you all.
Thank you all.
Thank you.
On behalf of Bandhan Bank Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.