Ladies and gentlemen, good day and welcome to the Bandhan Bank Q4 FY25 Earnings Conference Call. As a reminder, all participant 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 touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Vikash Mundhra, Head Investor Relations. Thank you, and over to you, sir.
Thank you, Sejal. Good evening, everyone, and a warm welcome to all the participants. It's a pleasure to have you with us today as we discuss Bandhan Bank's business and financial performance for the quarter and full year ending March 2025. We sincerely appreciate your time and participation. Today, we will take this opportunity to provide insights into our operational activities, significant achievements, and challenges, as well as offer perspective on market conditions, strategic initiatives, and any notable changes in our business environment. To walk you through all these details, we are joined by Mr. Partha Pratim Sengupta, Managing Director and CEO, Mr. Ratan Kumar Kesh, Executive Director and Chief Operating Officer, Mr. Rajinder Kumar Babbar, Executive Director and Chief Business Officer, Mr. Rajeev Mantri, Chief Financial Officer, myself, Vikash Mundha, Head of Investor Relations, and our senior management team at Bandhan Bank.
We are happy to answer any questions or provide additional clarity on the current quarter's performance and our outlook moving forward. Now, I would like to invite our Managing Director and CEO, Mr. Partha, sir, to brief you all on bank performance. Over to you, sir.
Thank you, Vikash. A very good evening to you all. At the outset, let me welcome you to the Q4 earnings call of Bandhan Bank. While my colleague and CFO, Rajeev Mantri, will walk you through the detailed Q4 financials, I would like to highlight a few key points from our recent performance, and then we'll share our strategic vision for the next two to three years. As we have discussed in the previous quarters, the microfinance sector has faced significant stress, and the overall liquidity tightness in the system has impacted both growth and profitability at industry level. However, I would like to note that the recent regulatory and monetary actions taken by RBI have been very, very positive, and we expect to see gradual steady improvement in the MFI segment in the coming few months.
With the ongoing challenges in the microfinance sector, our team has worked well to manage the situation. During the quarter, while loan growth and profitability showed moderate progress versus our guidance, we remain encouraged by the continued resilience across key operational metrics. Notably, we observed a consistent increase in the share of the secured loan book, robust growth in retail term deposits, and a reduced reliance on bulk deposits. These have contributed to a more diversified book and a stable and sustainable funding profile. Even with the elevated slippages, headline GNPA and NNPA ratios remained broadly stable on a sequential basis, underscoring effective asset quality management. Additionally, our strong capital adequacy position provides a solid foundation for sustained growth and improved performance in the coming quarters.
Despite heightened stress in the MFI segment during the second half of the year, resulting in elevated credit costs and moderate growth, the bank navigated these challenges with resilience and focus. I'm pleased to report that the full year performance of financial year 2025, we have delivered a reasonably strong performance. A snapshot of the same: our net interest income, it was INR 11,491 crore, a growth of 11%. Net total income was INR 14,458 crore, a growth of 16%. Operating profit was at INR 7,389 crore, a growth of 11%. Profit after tax was INR 2,745 crore, a growth of 23%. Return on assets of 1.5% and return on equity of 11.6% for the full year. Now, let us turn to the broad numbers for Q4. As of March 31, 2025, our advances book stood at INR 1.37 lakh crore, reflecting a year-to-year growth of 10% approximately.
On the deposit side, deposits have reached INR 1.5 lakh crore, showing a year-over-year growth of 12%, which outpaces the growth in advances. We remain focused on strengthening our granular liability franchise, and our deposit growth continues to outpaces the growth in advances. Retail term deposits grew strongly at 30% year-over-year, highlighting the growing trust and engagement from individual customers. CASA deposits now represent 31% of the total base, bringing the total share of retail deposits, CASA plus retail, to 69%. This marks a significant improvement in the granularity and stability of our deposit base. Additionally, we have effectively managed our funding mix by containing bulk deposits to 31% of the total deposits, further reducing concentration risk and enhancing balance sheet resilience. We continue to make steady progress on our diversification strategy.
In this quarter, our secured book grew by 32% year over year, improving the secured mix to 50.5% compared to 42% in financial year 2024. We remain firmly committed to maintaining asset quality. While credit costs remain elevated at present, we are focused on bringing them down over the couple of quarters. During the quarter, we have technically returned INR 1,136 crore. Despite an increase in slippages and higher upgrades and recoveries, our headline asset quality remains largely stable, with gross NP at 4.7% and net NP at 1.3%. PCR, including the technical write-up portfolio, was higher at 86.5%. For Q4, the net total income was INR 3,456 crore, and operating profit was INR 1,571 crore. The bank reported a patch of INR 318 crore for the financial quarter.
This, if we compare to the last year, it was very negligible at INR 55 crore because of the one-time write-up taken in the last quarter of the previous financial year. As previously communicated in Q1 financial year 2025, the bank adopted a conservative approach by increasing the risk rate on the emerging enterprises' business portfolio from 75% to 125%, which led to a 362 basis point reduction in our overall capital adequacy ratio. However, in February 2025, RBI clarified the risk rate norms, reducing them to 100% or 75% for MFI loans based on certain eligibility criteria. These regulatory clarifications have had a favorable impact on our capital ratios, with CAR increased at 18.7% and Tier 1 increased at 17.9%, further strengthening our capital position and providing additional headroom for growth.
Further, I am pleased to inform you that the Board of Directors have recommended a dividend of INR 1.50 per share, subject to the approval of the shareholders at the forthcoming annual general meeting. Looking forward, as the MFI environment stabilizes, we are confident that we are well positioned to take advantage of the emerging opportunities. Our focus will remain on sound risk management, exploring new growth avenues, and continuing to enhance operational efficiency. Moving ahead from the Q4 financials, as you may recall from our last quarterly call, I had mentioned about a few strategic initiatives. This included the formation of the Transformation Management Department, the Digital and Transaction Excellence Unit, the Market Intelligence Team, and the Credit Administration Department, all aimed at further strengthening the bank's quality loan portfolio.
I would like to take a few minutes to update you on the progress we have made in these areas. The Transformation Management Team has embarked on a forward-looking transformation journey, driving innovation in the bank through focus on modernizing our technology, optimizing processes, evolving capabilities, and innovating our business and operational models. Key initiatives include expanding retail liability sourcing through our banking units, modernizing credit underwriting with business rule engines, and analytical tool-driven scorecards to enable seamless digital processing. We are upgrading all digital platforms to align services, channels, and customer needs for a smoother and delightful journey. Additionally, we are rolling out state-of-the-art digital banking units and integrating emerging technologies like QR codes, WhatsApp banking, and facial recognition to boost customer convenience, operational efficiency, and risk management.
At the core of this transformation is a culture of agility and continuous improvement, reflected in our internal workspace digitization efforts and the strategic use of technologies like AEPS, etc. Altogether, these efforts are setting the stage for a smarter, faster, and a more customer-centric organization. The Digital and Transaction Excellence Unit is driving digitization efforts and has successfully completed a closed user group rollout of QR code-based collection for our microbanking customers, enhancing field-level collections. We are now set to gradually scale this initiative across all our networks. In parallel, we are making steady progress on key digital liability onboarding journeys, including savings and current account openings. In the government payment ecosystem, we have expanded our capabilities beyond GST and CBDT integration.
Notably, we have gone live with our partnership with SBI EPA, which has enabled us to gain access to the West Bengal GRIPS platform, further strengthening our presence in this space. Now, I will spell out the strategic priorities for the next two to three years. Over the couple of years, our strategic priorities will center on achieving deposit growth that outpaces the advances growth, with a strong emphasis on stable, granular retail deposits. We aim to expand our asset book with an improved secured mix, enhance asset quality, and continue investing in technology to elevate both customer experience and operational efficiency. Guided by a clear roadmap that embeds risk management and compliance into every facet of our operations, we remain optimistic about unlocking greater value for our stakeholders.
Given the current macroeconomic environment, we are targeting an advances growth of 15%-17% stage year over the next three years, with a strategic focus on increasing the secured mix. We expect secured advances to constitute over 55% of the total advances by financial year 2027. While both the secured portfolio and the EEB book are expected to grow, the secured book will grow at a relatively higher pace. The growth trajectory of the EEB portfolio will be aligned with the prevailing economic conditions. Liability growth is expected to outpace the advances growth, as building a strong, granular, and stable liability franchise remains a key strategic priority. We will continue to drive growth in both CASA and retail term deposits while actively working to reduce reliance on bulk deposits.
Leveraging the capabilities of our 1,731 branches and nearly 4,594 BUs, we aim to deepen our reach and mobilize more granular deposits. This initiative will play a crucial role in lowering our overall cost of funds and enhancing balance sheet resilience. Cross-sell is a key initiative that we are driving with a unified approach under the philosophy of One Bandhan. As part of the same, asset teams are actively supporting in garnering liabilities, and likewise, the liabilities team are contributing towards asset generation. This is through active activation of our distribution network in branch banking and other segments. This collaborative effort strengthens our overall business growth and customer engagement and is being steered by a central cross-sell enabling team. The planned increase in the share of our secured loan book is expected to have an impact on yields, but this is a conscious decision.
As a result, we anticipate some moderation in margins over the coming years on a risk-adjusted basis. On operating expenses, we will continue to invest in people, technology, and capabilities that support the bank's strategic growth objectives. As a result of these investments, we expect the operating expenses to asset ratio to increase by 10-20 basis points from the current levels for over the next two years. However, as operating leverage begins to take effect thereafter, we anticipate a gradual improvement in the ratio, reflecting enhanced efficiency and scalability of our operations. Asset quality remains the top priority, and I am confident that the guardrails we have implemented in the microfin sector, combined with improving trends within the sector, will lead to a meaningful improvement in asset quality over the strategic horizon.
While credit costs are expected to remain elevated in half year of financial 2025-2026, we are targeting to reach 1.5%-1.6% on full year basis of the credit costs over the next two to three years, based on our relentless focus on improving portfolio quality through robust risk management and aided by improving MFI cycle. Our focus remains on a steady and sustainable improvement in profitability, with a clear path towards improving ROA to 1.8%-1.9% over the next two to three years, driven by better asset quality, improvement in other income, and operating leverages. To summarize, we remain committed to building a long-term value through disciplined growth, strong risk management, and continued investment in our core capabilities. With that, I now hand over to Rajeev Mantri, CFO, to take you through the details of the financials. Thank you.
Thank you, Sengupta Sir, and welcome again everyone to the earnings call. Now, let's move on to the business performance for the quarter. I'll walk you all through the key financial highlights and provide an overview of how we have performed. Let's start with the advances. As of March 2025, gross advances stood at INR 1.37 lakh crore, reflecting a growth of 10% year-on-year and 4% quarter-on-quarter. In line with our strategic plan of product diversification, we are focused on growing the share of our secured book across housing, wholesale banking, and retail assets. The secured book grew by 32% year-on-year and now represents 50.5% of the total advances, marking a significant shift towards a more secure and diversified portfolio. The EEB portfolio saw a decline of 9% year-on-year, although there was a marginal increase of 1% quarter-on-quarter, reaching INR 56,544 crore.
This decline is primarily due to portfolio controls we implemented in response to the elevated risk in the microfinance industry. On the other hand, growth in the non-EEB book, which now represents 59% of our total advances, was strong at 29% year-on-year and 6% quarter-on-quarter. This growth was largely driven by robust performance across retail, wholesale banking, and housing segments. Specifically, retail assets grew by 98% year-on-year, wholesale banking assets saw an increase of 35% year-on-year, and housing loans grew by 18% year-on-year, excluding IBPC. The impressive growth in retail assets was mainly supported by commercial vehicles and equipment loans, auto loans, as well as gold loans, which are the secured products within retail. From a business mix perspective, our advances are well diversified across various segments.
EEB group lending represents 26% of the advances, as well as 15%, wholesale banking 27%, housing 24%, and retail loans have reached 8%, respectively. The bank has also made significant progress in geographical diversification. Over the past few years, the share of advances from the east and northeast regions has decreased by 14%, from 53% in 2022 to 39% in 2025. Conversely, we have seen an increase in advances from the north, west, and south, with growth in share by 3%, 5%, and 8%, respectively. In terms of regional concentration, our top five states—West Bengal, Maharashtra, Bihar, Gujarat, and Madhya Pradesh—now contribute 59% of our total gross advances versus 60% a year back. Especially, West Bengal remains the largest contributor at 23%, slightly down from 24% in the last year.
Liabilities: As of March 31, 2025, total deposits stood at INR 1.51 lakh crore compared to INR 1.35 lakh crore in the previous year, reflecting a healthy growth of 12%. Strategically, this growth remains higher than the growth in our advances, which we have continuously done in every quarter over the last one year. The bank continues to prioritize granular and stable retail deposits. Our total retail deposits, which include CASA and retail term deposits, grew by 11% year-on-year. Within this, retail term deposits showed a robust growth of 30% year-on-year. Retail deposits, CASA plus retail TD, to total deposit ratio was around 69%, largely same as in the previous quarter, reflecting the strong focus on mobilizing stable deposits. Our reliance on bulk deposits remained lower, with the share of bulk deposits to total deposits marginally reduced quarter-on-quarter at 31%.
CASA deposits stood at INR 47,437 crore, reflecting a 5% year-on-year decline but an increase of 6% quarter-on-quarter. While the growth has been on the softer side, it aligns with broader industry trends. It is important to note that while CASA deposits have shown a year-on-year decline on a period-end basis, on an average basis, CASA deposits have experienced a marginal growth on a year-on-year basis. The bank continues to focus on strengthening relationships across our customer base. It is actively working on enhancing our value proposition for different customer segments and expanding our customer base to drive growth in this area. From a geographical perspective, our top five states—West Bengal, Maharashtra, Uttar Pradesh, Odisha, and National Capital Territory of Delhi—now account for around 65% of the total deposits. Notably, West Bengal continues to be the largest contributor, representing 40% of total deposits, which is consistent with the previous year.
Moving on to collections and asset quality. The bank's overall collection efficiency, excluding NPAs, in Q4 FY25 improved slightly to 97.9%, compared to 97.7% in Q3 FY25, a 20 basis points improvement. For the EEB book, collection efficiency, excluding NPAs in March, improved to 98.2%, up from 97.5% in December 2024. For the quarter, collection efficiency also showed an improvement, reaching 97.8% compared to 97.4% in Q3 FY25, reflecting some improvement in the collection efficiency for EEBs. For further details on collection efficiency, you can refer to slide 19 of our investor deck, which has more details. The collection efficiency for our PAR book, which excludes the DPD book, was at nearly 99.5% for the month of March 2025. On asset quality, the gross slippages rose to INR 1,748 crore versus INR 1,621 crore in Q3, with the primary contributor being the EEB segment.
Slippages in the EEB book increased to INR 1,349 crore, up from INR 1,196 crore in Q3 FY25. Recoveries and upgrades improved slightly during the quarter, reaching INR 355 crore compared to INR 282 crore in Q3 FY25 at the bank level. Additionally, the bank undertook write-offs amounting to INR 1,136 crore during the quarter. As a result, the gross NPA and the net NPA ratios remained stable on a sequential basis at 4.7% and 1.3%, respectively. The provision coverage ratio increased marginally to 73.7%, excluding the write-off, and including the write-off, as Partha Pratim Sengupta talked about earlier, was higher at about 86.5%. The overall EEB DPD pool, SMA 01 and 02, stood at INR 1,895 crore, representing 3.4% of EEB advances in Q4, compared to 3.8% in Q3 FY25, representing a 40 basis points improvement.
This reflects an absolute quarter-on-quarter reduction of INR 223 crore and reflects, as an early indication of successful containment in the DPD book, which still is being monitored on an active basis. We continue to strengthen our collection mechanism, which focuses efforts to further enhance the overall portfolio quality of the EEB book. Details of the EEB DPD pool are covered in slide 20 of the investor deck. Credit costs, though remained elevated, showed improvement both quarterly and annually. Credit costs, including the standard assets for the quarter, stood at 3.9% of advances, down from 4.1% in the previous quarter. For FY 2025, the credit costs declined to 2.9%, representing nearly 50 basis points year-on-year reduction. Coming to the quarterly profit and loss, the net interest income for Q4 FY 2025 stood at INR 2,756 crore, marking a 4% year-on-year decline.
The sequential and year-on-year drop in NII was primarily driven by a shift in the advances mix towards secured products and the impact of elevated slippages, as well as the risk in the microfinance segment, as a result of which the microfinance segment growth was lesser compared to the last year. Net interest margin for Q4 FY2025 came in at 6.7%, down from 6.9% in Q3 FY2025, reflecting similar pressures from the secured loan mix and higher slippages. However, on a full-year basis, the NIM remained resilient at 7.1%, just 28 basis points lower year-on-year and within the guided range of 7%-7.5%. Net total income for Q4 FY2025 stood at INR 3,456 crore, suggesting a 3% year-on-year decline. Sequential drop was primarily due to one-time gains recorded in the last quarter, including a claim payout from CGFMU and recoveries under the Assam Relief Scheme in the MFI portfolio.
Operating expenses rose 10% year-on-year to INR 1,884 crore in Q4 FY25, reflecting continued investments in people, technology, and infrastructure, and based on growth in non-EEB business volumes. As a result, the operating expenses to average assets ratio stood at 4.1% for the quarter, declined by 6 basis points quarter-on-quarter, and 4% on a full-year FY25 basis. It was up 17 basis points year-on-year. Operating profit for Q4 FY25 came in at INR 1,571 crore. Provisions for Q4 FY25 stood at INR 1,260 crore, down 29% year-on-year. Despite the year-on-year decline as well as the quarter-on-quarter decline, provisions remained elevated during the quarter due to the continued stress in the microfinance segment, which is being seen across the industry. Provision line item also benefited from one-off gains of INR 123 crore from a claim on the ECLGS portfolio that the bank has received.
We have also been prudent in making provisions on the EEB portfolio in view of the certainty and stress we are seeing in the MFI sector, reflected in the PCR levels that we have maintained. The bank reported a net profit of INR 318 crore in the quarter compared to INR 55 crore in Q4 Fiscal Year 2024. Thank you all for your patience here. On behalf of the management team, I once again thank you for participating in the call. We will 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 touchstone 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 Vatsal Parag Shah from Knightstone Capital Management. Please go ahead.
Yeah, hi. Thank you for the opportunity. Couple of quick questions. What will be our proportion in Karnataka and Tamil Nadu as a percentage of advances?
Tamil Nadu, we have a share of only less than 1% in the total advances for the day. Karnataka is 1.1%. 1.1%. Both are very negligible. The DPD book is also very low. Only, I would say, the collection efficiency is also around 97% in these two states. We are not that much impacted into whatever is happening in both these states.
These are the percentages of total EEB advances? Yes.
Number two is that we have seen that in both the states, the regulations have excluded the bank. The bank is not a part of the regulation. Of course, this will have some, I would say, impact on the people as the borrowers there for that year. In general, the other regulatory measures are not applicable for us.
Got it. Secondly, what will be our fixed book percentage?
Are you talking about fixed rate book?
Yeah, fixed rate.
It is around 48%. 48% of our loan book is around fixed rate.
48. Okay. Thank you. That is it.
Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead.
Yeah. Hi team. Congrats on the quarter, disturbing time. Just a few questions. Firstly, on interest reversal, what is the interest reversal this quarter versus a similar number in Q4 FY2024?
Sorry, could you repeat that question?
Interest reversal.
Interest reversal, sorry. For the quarter.
Yeah. Give us a couple of minutes. We'll come back on this question.
Yeah. Okay. Sure. Secondly, what sort of impact do we expect on our deposit cost after this rate cut we've done on SAH, as well as overall we are seeing term deposit rates for the system, wholesale and retail going down? Can you guide us to some sort of cost of deposit for FY2026?
We have also reduced our interest rates on both savings bank and term deposits. The rationalization has already taken place. It will come into effect from May 1 onwards. We are expecting that around 30 basis points where we were giving on the highest bracket, 8.05, it has come down to 7.75. Of course, the transmission in the deposit will not take place immediately.
It will just take place as and when these deposits mature and renew. In the advances section, for that year, almost close to 40% of our books which are on the EBR into EBR, the transmission has already been passed. I can say some effect will be there for the first two quarters. Going forward, it will be well-managed.
Yeah. We do not have a specific guidance on the exact cost of deposits reduction. As Sara said, there is action being done both on the savings and term deposits to see in certain buckets where we can actually reduce the cost. I think the results of that will come through through the year.
Okay. I think I heard Sara say 40% is EBLR linked loans?
I will clarify that.
The fixed rate loans, which means that there is no change due to any change in the market rate, is close to 55% of the portfolio.
EBLR?
In the remaining part, 5% is only NCLR and all rest are EBLR.
Piraj, the remaining 45% of the floating loan, of that half would be EBLR-based and another half would be NCLR. NCLR. NCLR. Repo-based. Yeah. Oh, repo-based is EBR? NCLR is around 5%. We have a very small portion in.
Okay. Interest reversal for the quarter. Quarter four to quarter two, do you know?
Piraj, on your previous question on interest reversal, during the quarter, we had INR 69 crore as interest reversal.
What was it on year-over-year comparison?
Please get back to you, Piraj, on that. Currently, we don't have it.
Sure. Sure.
Also just with NCLR, EBLR, I think there was some you all were having a discussion. Can you just clarify? Out of that 45% floating rate, how much is NCLR, how much is EBLR?
To give you, 55% is fixed. Of the balance, 45%, our EBLR is 26% and NCLR is coming 19%. That's for sure. 26% and 19%.
Got it. Got it. Just my last question on your MFI customers, now around 8% of them are GNPAs. What percent of them would be actually paying some amount of EMI?
Can you highlight?
In simple words, collection efficiency from the GNPA book.
Yeah. March where we collected around INR 80 crore from this collection from which has been there. I think sometimes any highlights of.
Hi there. Vishal here.
Overall, from an 8% number, close to 25% of that 8% is paying us some amount. Some amount comes to 1 EMI or less than that, but some amount keeps on coming through from our GNPA.
Okay. 25% of the 8% number?
Yeah.
Got it. Got it. Okay. That's it from my end. These are all my questions. Thank you and wish you all the very best.
Thank you.
Thank you. Before we take the next question, 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 Mohit Jain, from Tara Capital Partners. Please go ahead.
Hello. Can you hear me, sir?
Yeah. Yes, we can hear you.
Yes. Hi. Hi. Yeah. Please do. My first question is with regard to the SMA book for the EEB portfolio.
If I'm looking at West Bengal, this quarter, we are seeing a slight increase there in the SMA zero bucket. What can be the particular reason behind it? Also, considering the fact in the month of April, there have been some disturbances in some districts of West Bengal. How adversely has it further been affected by it?
One is because of the holidays. The last three days were holiday in West Bengal, as you all know, 29th. All over, whatever the demand raised during this period, the borrowers could not pay. This has been eventually corrected. Most of the accounts have been eventually corrected.
The 20th is in the current month because there was a media report that in some district, there are some kind of disturbances. Any effect this has on the market? Murshidabad district.
Muchidavar district, we have our 4% share of the NPA, we are having around 4%. Almost 88%, I would say in April, almost 88% is regular. The SMA zero book percentage is 6%. SMA one book is only 1%, and SMA two is another 1%. I can give the latest figure as of April, we have INR 2,151 crore outstanding, of which only INR 91 crore is in NPA. The other also delinquency book is very small.
Okay. Sir, the other question which I'm having is on the long-term guidance which we have given that we'll be looking at our credit cost of somewhere near 1.5-1.6% over the next two, three years.
I guess that we have already said that in the earlier conversation, which has been said that EEB book our target is around 2-3% in terms of the credit cost. If I'm looking at slide 21, it seems that the loans which we have disbursed over the last one year, the NPA in those books is coming at 4%, 3.5%, 4%, which is again very much on the higher side in respect of even the recent origination. If this is the trend we are having in the recent origination, what gives us the confidence that over a longer period of time, the NPA of the credit NPA of the EEB book is going to come down to somewhere near 2-3%, sir?
Yeah. If you look at those figures, you see it was 4% in financial year 2024, Q3, and Q4.
If you look at the financial year 2025 figures, it has come down from 2.8%. Q2 is 1%. Q3 and Q4, just see Q3 is 0.1% and Q4 is nil. Gradually there is an improvement also. As Rajeev has also said, in the overall DPD book also, we are finding that there is an improvement. Sequentially, it is coming down. Almost INR 230-240 crore, it has already come down. The quality of these advances, we are now imposed the guardrails, as you all know for that day. We had our own guardrails. Apart from that, the NPA guardrails have also been imposed. This is definitely impacting for the one to two quarters where the business growth will get a little bit impacted. The stress level will also be contained to a large extent.
Going forward, we believe that the loan loss provisions would be comparatively lesser, especially the incremental loan loss provisions. There will be a growth in the business. We have also kept a guidance of around INR 5,000 crore of growth in this EEB segment. Overall, with the growth in the business and also with the decrease in the incremental loan loss provision, the trade cost will improve.
I think just to supplement a couple of other points, one is if you look at our number of lender criteria, we have already been sort of complying with to a large extent. 92% of book is Bandhan Trust 2. To the extent of that, sir, over-leveraging situation in our portfolio is fairly limited. Also, as you know, most of these loans are one-year tenor.
Therefore, I think the book that is of FY25 is a more reflective book, which will basically result. Of course, the risk in the industry is elevated, and we do expect the next couple of quarters to be challenged. Thereafter, as the improvement comes through, I think we'll be in a good boat to be able to come out of that.
If you look at our overall trade cost also, 2.9%, we could manage it for the entire year. While the quarter Q4 trade cost is quite high, the delinquency book, as you can see in that slide also for that year, it is actually coming down. The loans which are given in financial year 2025, their quality is much better.
We expect the microfinance credit cost to come down from the current levels.
Because of the change in the mix towards higher secured, we should also get further benefit. That is why the guidance of 1.5-1.7% over the next two to three years.
Fantastic. Just one clarification. You said about the figure of INR 5,000 crore, that is the EEB disbursement we are looking for the current year or the EEB growth for the current year for FY 2026?
It is the net growth we are looking at here.
Not the net growth. In the summary, EEB growth of INR 5,000 crore in the EEB book for the current year FY 2026, sir.
Correct.
Okay. Thank you, sir. Thanks a lot for answering the question, sir.
Thank you. The next question is from the line of Anand Swaminathan from Bank of America. Please go ahead.
Thank you. I have a couple of questions on the EEB book.
Just circling back to slide 19, where you've shown the West Bengal, Assam, and rest of India collection efficiency. I just wanted to understand which are your worst-performing states which are driving down your collection efficiency to 98.2%. That's the number one question. Number two, in terms of disbursal rates, I get the INR 5,000 crore number. In terms of month or quarter, when do we expect we are getting back to a normalized disbursal level during the year? Those are my two questions.
Thank you. Answering the first question, our states which are not performing the way performance has happened in the eastern part are Maharashtra, parts of Gujarat, and Tamil Nadu, Karnataka, which are small quarters. These are three or three, three and a half, four states which are not doing well. Parts of Gujarat and Tamil Nadu, Karnataka.
On the second question, I think the first quarter is going to be a muted one. I think quarter two onwards, the disbursals should pick up. By the end of quarter three, I think we will have hopefully a normal year, a quarter the way it was there prior to a couple of years. That should stabilize over quarter three and quarter four. The first two quarters, specifically the first one, will have a muted growth only.
Sure. Thank you. Just to clarify, Maharashtra, Gujarat should be close to 96% collection efficiency even in March?
March was slightly better, 96, 96.5 on the collection efficiency front. Tamil Nadu was 96 and Karnataka, similar, 96.5.
Okay. Is there anything localized which is the problem which is keeping these states a problem, or it's just over-leverage issues extending?
Primarily at the Pan India level, it's a similar over-leverage issue. Like Rajeev clarified also, that Bandhan Trust 2 relationship for us, it's much, much higher than the counterparts, and it's at 92%. There are small quarters like Murshidabad that have come up in the last two months only. That has disrupted a bit for a couple of months. We do not see this continuing for long because things stabilize. After four-five weeks cycle, it comes back to normalcy. There have been disruptions, localized disruptions up and running in some places, but not so rampant. The impact is more in Karnataka, Tamil Nadu over the last three-four months.
Sure. Thank you. Lastly, April, after implementation of the new state, has there been any change in collection efficiency?
Just calling at you, please. Sorry. Anand, can you repeat that? Sorry.
In April, after the implementation of the new guardrails, has there been any change in collection efficiency in any of the states?
Collection efficiencies for the month of April have remained stable. However, the impact of guardrails has been more strongly on the disbursal side. With three lender norms, the maximum you could give. Obviously, there are other companies who also grant loans to the same customers. That has got, but I think over a period of time, things will stabilize. Otherwise, we do not see any collection efficiencies really dipping down in the month of April, apart from one or two places which we spoke about earlier.
Also, Anand, I think April has had a number of holidays. I think we will have to see a more normal month like May to be able to get the full picture.
These are mostly weekly repayments.
Holidays actually sometimes temporarily affect the quality of the effect. That normally gets again repaid. Yes.
Sure. Thank you. That's very useful. Thank you.
Percentage-wise, while the delinquency is high in Tamil Nadu and Karnataka, the overall book size is very, very low. It's only INR 103 crore and INR 400 crore around in these two states.
Thank you. The next question is from the line of MB Mahesh from Kotak Securities. Please go ahead.
Just on the question on this West Bengal again, you've kind of indicated what are the current month performance as you gave a number. I just wanted to clarify.
On the collection efficiency? Which parameter?
No. The SMA zero one and two, you had mentioned a number that the performance had improved in April. Just trying to check what was the comment on that. No.
April number, we have not seen.
There is s till a month to get close. We have still collections going for today as well.
I can tell you two days back, the slippages percentage has actually come down. I am having a positive of around some marginal positivities there compared to March.
Yes. Mahesh, if you look at the SMA position as at March end compared to December end, definitely, I think there is an improvement. I think the overall SMA book for EEB, we are seeing some bit of a reduction.
Second question. Yes. Second question, sir, we are doing about 4% credit cost right now on an annualized basis for the last two quarters. In your assessment, how does that go for the next two quarters given the near-term numbers that you are looking at in the slippages on the EEB book?
I do not think Mahesh will give specific guidance on a quarterly basis. I think as we have said, due to the risk which is still there in the EEB segment in the industry, in the MFI segment in the industry, and with the tightening of the tightening criteria from four to three, I think it is natural to expect the next two quarters there will be some continued stress. Albeit we do expect some marginal improvement quarter on quarter. As Vishal earlier mentioned, by Q3 is when we expect, I think, a turnaround, some sort of turnaround to happen.
Okay. My last question, sir. You have given us a rough indicative ROE decomposition of how we should look at the franchise in the medium term. You have a margin today which is about 7%. You are indicating that number will be down by about 20 basis points.
Is that how we should read it?
Maybe, Mahesh, I can give you a broad indication on that. I think as our secured mix increases further, over the next three years, we should expect, I think, margins, the NIMs to come down by, say, another 50-60 basis points. What we are doing to offset some of the impact is focus on other income where we do expect, say, another 20 basis points or so increase to come through. As mentioned, I think our cost, we will have to invest further to grow our secured book. Over the next two years, I think we will invest further, another 10-20 basis points increase. Thereafter, I think the efficiencies of scale should start coming in. Credit cost is where we should start seeing a big reduction, right?
As a result of which, I think the fee income will be also aided by newer initiatives such as transaction banking. We've recently got some trade products that we've launched. Those should start helping us as well. As a net result of all of these lines is where we are saying from the current level, I mean, this financial year we had 1.5% of ROE. The latest quarter is lower. From there, on a glide path basis, we expect to reach around 1.8-1.9% of ROE by the end of the next two to three years.
Most of the continuing the slippages. We are not expecting the slippages because this year, Q4, the EEB segment slippages was almost 10%, which will substantially come down. That's we are expecting.
Rather than getting my clarification is, based on your numbers, you seem to be projecting what looks like a peak ROAs of about 1.8, which means that the ROEs are about 14%. Even if you have some disturbances to the portfolio, the corridor of ROA seems to be much lower that you seem to be targeting. Just trying to understand if the assessment of the numbers are right.
Yeah. I think, look, it just depends upon the pace of the transformation. It is a material transformation we are doing to improve the secured mix, which takes time. As we are saying, we are investing to be able to grow that. The pace of the transformation and how exactly these businesses grow up, and at the same time, the pace of the reversal of the cycle in microfinance. It will really depend upon these two factors.
What we have not factored in this cycle is, let's say, further improvements to cost of funds. What we have not factored is further operational efficiencies that we can drive because we are actually actively digitizing and bringing a lot of automation across our processes, both from a customer end perspective and internally. Some of these factors should give some further augmentation.
I would rather put it very simply that if you look at the annual ROE, annualized on full year basis, which is 1.5%, Q1 and Q2 were good. Q3 and Q4 were bad. The reverse will happen for this year. Q1 and Q2 will be comparatively little more challenging, whereas Q3 and Q4 will be good. Going by the same philosophy, I think 1.5-1.6% can be maintained for this year.
This is the guidance we have given for the next two years.
Mahesh, overall, that larger transformation and the transition as MB pointed out, that will take a couple of years to come through. Obviously, at this point, we are targeting that kind of an ROE. As it pans out, maybe over the next four to six quarters, we will relook at it and then come back to you with the first guidelines.
Sure. P erfect. Thank you.
Thank you. The next question is from the line of Jai Mundhra from ICICI Securities. Please go ahead. Yeah.
Hi. Good evening, sir. A few questions. First, on capital theft. Have we taken the full impact of RWA decline, or is there any loan book where the lower risk rate is yet to be applied?
Yeah. Maybe I'll take that, Jay, Rajeev here.
As you've seen, the RBI clarification, the circular came through in February 25. As part of it, we have assessed and we have looked at, and a large part of our EEB book, which is both across group lending and as well, sort of fulfills the criteria which are mentioned. We have been able to take the benefit of that in the RWA calculation. We have also been cognizant of the change that is coming from first April, which is for lending to NBFCs. I think that should give some further benefit to the RWA calculation. That's not yet included in the March number because that's applicable only from first services. The improvement on the total CAR of 18.7%, which is the number now compared to the earlier numbers, is really based on the February clarification.
New clarifications are discussed.
Sure.
The EEB proportion is taken care of, right? I mean, the entire whatever the benefit was there on EEB, on individual as well as.
Definitely. Significant improvement has happened only in the EEB book. That is correct.
Yeah. Positive. Sure. Secondly, sir, on the, I mean, CGFMU, on incremental disbursement, are we taking CGFMU insurance, or we have discontinued that thing?
At present, we are not taking it. Yes, definitely. Can you clarify?
You see, we have to do our own calculation of whether it is beneficial to the institution at this point going forward or not. We are not averse to it, but we are evaluating at what stage we would like to look at it because there is a threshold value beyond which if the quality goes bad, it makes beneficial for us. That is the stand as of now.
We are evaluating very actively.
Sure. And of the non-EEB slippages of INR 3.5 billion, how much was from home loan and maybe the wholesale segment?
Wholesale segment, the slippages is very low. It is only 0.6% in the Q4 for that year. Housing finance, of course, the slippages have been 2.3%, a major part from the legacy books what we have acquired from Group Finance for that year. That is the broader numbers.
I think just to clarify on housing wise, the gross slippage comes to 2.3%. A large part of it gets collected during the month. On a net basis, I think we end up at around 0.6% or so. It may be last March, it was zero almost. It was zero slippage. Correct. Net slippage. Yeah. Net slippage was zero.
Sir, would you have the INR crore number? I mean, the percentage sometimes. Sure.
If you want, I can just multiply. The housing on a net basis was only INR 70 crore of net addition on a gross slippage of INR 180 crore. Yeah.
Okay. Sure. Lastly, sir, OpEx growth, while I take your, I mean, last quarter and last two quarters, we have said that the OpEx growth will be higher than loan growth. This is primarily because new businesses, they are more OpEx heavy, right? That is how it should be. I mean, it is also a function of the loan mix change, apart from investments that you are doing in maybe people processing.
I can take that. I think there are two or three key pieces.
One is the newer businesses or the secured business where we're dialing up the focus required, investments in people and technology because we are making sure that we have the right talent in the right areas, in the right geographies, in the right segment. Also, we are investing in the latest state-of-the-art technology. As you know, last year, we had the core banking system upgrade. Now we are focusing on further systems like loan origination, which is going to with the state-of-the-art LOS providers such as Salesforce. We are going to make sure that it has an enhanced customer experience that comes through. I think that is the focus in terms of both the talent as well as the technology that is being deployed. At the same time, I think further distribution network in terms of branches to be able to drive a deposit growth.
Actually, yes. Basically, three things. One is that we have opened any branches in the last quarter of the previous financial year, not this year. That expenses are adding up. We will definitely get the benefit of business from these branches going forward. The second is that the investment in the IT, the depreciation cost is a major OpEx cost. As Rajeev has said, both were necessary and the business will also come once these are stabilized. The third is the manpower cost because we wanted to invest in people. In many areas where we have yet to start business, we have taken people, like in credit cards. We are going to launch soon. We have already taken the resources, major skilled resources. Similarly, in the other areas also, there have been some people recruitment excess.
Yes, the strength of these will be derived in the coming months to come.
Lastly, sir, just a small clarification. I think in the SMA zero increase in SMA zero investment, you have mentioned that that has also rolled back, right? That would have come back to maybe, let's say, 0.9% was the Q3 number. Has that come to that level, or it is only, I mean, you said that 2.3% rise, rise from 0.9% to 2.3% is because of holidays and because of some localized turbulence. I mean, how does that stand? I mean, in percentage terms, if you have this number.
What we have done since 30th, 31st being a holiday and 31st was a holiday demand date, that's why it has elevated from 0.9% to 2.3%.
Of all that which has gone forward, has got all 95% of the ones which is carried forward. We collected 92.7. 8.3 which got forward, we collected 95% of that in the next seven days. That one week collection has already come through. This month, we had four, five holidays.
We will not see this kind of an elevation in the one time. I think most of it has got collected thus far. These are only so much in weekly recruitment period. You see, in our EEB book, for this group loans, we have a weekly recruitment period. That does get affected whenever there is a holiday and more so if there are consecutive holidays. Every month, this month also, we are having three, four days like that on a day. It will be there, the elevated portion.
If it comes on the if you take the data on that particular date, it will be shown a little bit elevated. Overall, there is no stress because those things get collected.
You see, SMA one and two, those numbers have come down. This 31st of March was one number. If it happens again on the last day of the month, obviously, the last day billing gets impacted. Otherwise, over the period of the month, we collect. This one, we specifically focused on the next one week. We were able to collect 95% of the 8% which had gone through. It became typically the same number of what typically goes through each cycle.
Thank you. The next question is from the line of Param Subramaniam from Investec Capital. Please go ahead.
Yeah. Hi. Thanks for taking my question.
My question is mainly on looking at next year, right? We have given guidance for the next two to three years. If we look at next year specifically, would it be reasonable to say that ROA will be under pressure because of what I heard on basically that we are investing to operating?
I have told you very clearly, if you look into the current year, Q1, Q2 was good. Q3, Q4 was comparatively bad for that year. Overall ROA, we have maintained at 1.5%. This year, which is just the reverse, Q1, Q2 will be a little bit bad. Q3, Q4, we are expecting to be good.
Yes, sir. At the same time, in the first two quarters, our operating profit profile was way higher. It looks like it has reduced quite significantly, right? Is this if you want, yeah.
Q1, Q2 of this quarter was quite good. Operating profit, income, EEB, loan book, everything was quite good for Q1, Q2 for that year. Q3, Q4, suddenly, the situations have a little bit become, I would say, challenging. This trend is continuing, but it is diminishing. I think by Q2, all these problems will be more or less addressed. Q3, Q4 will be a good year for doing business. We are expecting the same way, the same trend will be there in the ROA.
I think further to your question, Param, you're right that the secured mix percentage has gone up. To that extent, right, the NIM margin pressure are there. As sir mentioned earlier, there are actions being taken such as reducing the cost of funds, right, which should give some bit of an offset.
We'll actively look at avenues available to us. Yeah, structurally, we're moving towards a higher secured mix. I think the impact of that will be there.
Okay. Got that. Just on this bit again on operating profit, right? We are at about, if you look at the last couple of quarters, if I look at operating profit as a percentage of assets, it's at about 3.3-3.4%. That is lower than where we generally operated. If I heard correctly, we're talking about mix shift, bringing margins down, and still investing in the business. How does this number look? Say, how is it going to evolve over the next year specifically and then beyond that?
Yeah. Look, our full year ROA was 1.5%. Our Q3 was 0.9, and Q4 has been 0.7, largely impacted because of the elevated slippages in micro.
Let's say, as I mentioned, once the cycle starts to turn for microfinance, we should see some relief coming from there and the improvement and more normalcy. At the same time, as the capabilities that we talked about, which will give us higher other income and various other revenues, start to kick in, we should get benefit of that. It is sort of a glide path from the current levels to reach the 1.8-1.9% over the next two to three years, right?
Got it. One more question, if I may. For this year, the margin pressure on the margin line, how much would the pressure because of the interest reversals have been, say, broadly in basis points? It is okay if I can get this offline as well.
As you have told, that almost 25%, we have already given the effect of our loan book, we have already given the effect, which is under EBR. The fixed rate loans will largely be unimpacted till we decide a change in the interest rate. Yes, one thing is there that the effect of the benefit on account of reduction in interest rates and deposits, that will only come over a period of time. It will not be immediate. The savings bank will be.
I got that. Sir, I was asking on the interest reversals on the slippages that would have some margin pressure.
That's a small amount. Very, very insignificant. That is not insignificant. 60-70%. Param, we can give you for this year. Yes. Yeah.
Okay. Okay. Okay. Thanks a lot for all this. All the best. Thank you. Thank you.
Thank you.
The next question is from the line of Ankit Bihani from Nomura. Please go ahead.
Hey, thank you for the opportunity. I just wanted to know, what is the yield on our microfinance portfolio and non-microfinance portfolio currently?
I think the differential between the two, yield is roughly around 10%. So EEB is, I think, around or upwards of 20%. 22. So 22% and 20%. 20%.
Yeah. 20% and 10%.
Okay. Okay. The other part was that what has led to the negative tax in this quarter?
Yeah. I can clarify that. As part of the review of the tax, I think there are two aspects that we have accounted for. One is what we call as the deferred tax assets on the ESOF. As you recollect, in the last quarter, we had an accounting impact on ESOF close to around INR 166 crore.
As part of the accounting review, I think the deferred tax asset on that got created in this particular quarter. That is roughly around INR 61 crore. In addition to that, there is one of the old years income tax provision which has been released.
The assessment has been completed?
Yeah. Linked to the assessment which has been completed.
The additional amount has been released.
In total about INR 87 crore in this quarter.
Okay. Got it. Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Once again, thank you all for attending this Q4 earnings report of Bandhan Bank.
Just to conclude, I can say that we have, if you look at the year performance, the total financial year performance, there has been a good increase in our net profit and also operating profit. Probably we are one of the very few financial institutions having sizable assets in microfinance who have been able to give this result for that year. That is one plus point I would just like to tell all the analysts. Thank you all.
Thank you all for joining in. Thank you very much.
Thank you. On behalf of Bandhan Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your line.