Bandhan Bank Ltd (BBL) is a commercial bank focused on serving underbanked and underpenetrated markets in India. It has a banking license that permits to provide banking services pan-India across customer segments. It currently offers a variety of asset and liability products and services designed for micro banking and general banking, as well as other banking products and services to generate non-interest income.
Operating Model Focused on Serving Under-banked and Under-penetrated Markets
BBL is a commercial bank focused on serving underbanked and underpenetrated markets in India. Its historical strength lies in microfinance, with its group beginning operations in 2001 as an NGO providing microfinance services to socially and economically disadvantaged women in rural West Bengal. While its business model has transitioned over the years, operating as an NGO and then a non-bank finance company ('NBFC') before becoming a bank, the provision of micro loans to women has remained the core focus. It reach its micro loan customers largely through extensive network of doorstep service centres, which are low overhead banking outlets located nearby customers.
Consistent Track Record of Growing a Quality Asset and Liability Franchise
BBL's micro loan business began in 2001 as part of Bandhan Konnagar, an NGO. Its microloan business was then transitioned to BFSL, an NBFC in 2009, which then established as a bank and transferred the micro loan business to it in 2015. Across these phases of development, its micro loan business has consistently grown a quality asset base. Since BBL began its general banking business, it has grown to offer a broad and diversified range of asset and liability products to its customers, while maintaining strong asset quality. Moreover, BBL is conservative in its approach to providing for non-performing loans, providing for them sooner and in higher amounts than required under RBI regulations.
Low Cost Distribution Network
BBL provides its products and services primarily through an extensive physical network of branches, DSCs and ATMs. It began operations on August 23, 2015 with 6.77 million customers and 2,022 DSCs from its micro loan business, as well as 501 branches and 50 ATMs that it established for its general banking business. This extensive footprint that micro loan business provided allowed BBL to expand into the general banking market in a way that a new entrant into the market could not, enabling it to tap into the large and growing Indian retail banking market rapidly and profitably. BBL has since grown so that as of December 31, 2017, it operated in 33 States and Union Territories in India, reaching 11.99 million customers through 887 branches, 2,633 doorstep service centres and 430 ATMs, with 2.13 million of its customers belonging to its general banking business. Its distribution network is particularly strong in East and Northeast India, with West Bengal, Assam and Bihar together accounting for 56.37% and 57.58% of its branches and DSCs, respectively, though its focus is to expand across India.
BBL has grown at a rapid pace in last few years by rapidly increases its network. We believe that robust growth trajectory does merit premium valuations but maintaining asset quality may be a challenge. At the upper end of issue price of Rs 375 per share the bank is priced at 7.9x 9MFY18 Adjusted book value and PE of 32.2x 9MFY18 EPS. We believe issue is fairly priced and hence, recommend investors to subscribe to the issue.