BANDHAN BANK LTD (NSE: BANDHANBNK) Q4 2025 Earnings Call dated Apr. 30, 2025
Corporate Participants:
Unidentified Speaker
Rajiv mantri — CFO
Analysts:
Unidentified Participant
VIKASH MANDRA — Analyst
Mr.pasa — Analyst
Batshil paraksha — Analyst
Batshil paraksha — Analyst
Vishal — Analyst
Mohit jana — Analyst
Mohit jain — Analyst
Anand — Analyst
MB Mahesh — Analyst
Jay Mantra — Analyst
Paran — Analyst
Ankit Bihani — Analyst
Presentation:
operator
IT. SA. It. Ladies and gentlemen, thank you for patiently holding. The conference will begin shortly. Please stay connected, do not disconnect. Ladies and gentlemen, thank you for patiently holding. The conference will begin shortly. Please stay connected. Do not disconnect. Ladies and gentlemen, thank you for patiently holding. The conference will begin shortly. Please stay connected. Do not disconnect. Thank you. It’s SA it. Ladies and gentlemen, good day and welcome to the Bandan Bank Q4FY25 earnings conference call. As a reminder, all participant line 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 Mandra, head Investor Relations. Thank you. And over to you sir.
VIKASH MANDRA — Analyst
Thank you, Pejal. Good evening everyone and a warm welcome to all the participants. It’s a pleasure to have you with us today as we discuss Vandal 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 insight 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. Pascha Pratim Sengupta, Managing Director and CEO Mr. Ratan Kumar Keshe, Executive Director and Chief Operating Officer. Mr. Rajindra Kumar Babbat, Executive Director and Chief Business Officer. Mr. Rajiv Mantri, Chief Financial Officer. Myself Vikash Munda, Head of Industrial Relations and our senior management team at Bandhan Ma’am.
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. Pasa sir to brief you all on bank performance. Over to you, sir.
Mr.pasa — Analyst
Thank you, Vikas. 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 Rajiv 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 has 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 GNP and NNP ratios remained broadly stable on a sequential basis, underscoring effective asset quality management. Additionally, our strong capital adequacy position provides a solid foundation of 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 am pleased to report that the full year performance of financial year 25 we have delivered a reasonably strong performance. A snapshot of the same Our net interest income it was rupees 11,491 crore, a growth of 11%. Net total income was rupees 14,458 crore, a growth of 16%. Operating profit was at 7389 crore, a growth of 11%. Profit after tax was rupees 27. 45 crore, a growth of 23%, return on asset 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 3-31-25 our advances book stood at 1.37 lakh crore reflecting a year to year growth of 10%.
Approximately on the deposit side deposits have reached 1.5 lakh crore showing a YoY growth of 12% which outpaces the growth in advances. We remain focused on strengthening our granular liability franchise and our deposit growth continues to outstrip the growth in advances. Retail term deposit grew strongly at 30% YoY, highlighting the growing trust and engagement from individual customers. CASA deposit 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 deposit, 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% YoY, improving the secured mix to 50.5% compared to 42% in financial year 24. 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 written off rupees 11. 36 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 NPA at 1.3%. PCR including the technical write up portfolio was higher at 86.5%.
For Q4, the net total income was rupees 3456 crore and operating profit was 1571 crore. The bank reported a PAT of 318 crore for the financial quarter. This if you compare to the last year, it was very negligible at rupees 55 crores because of the one time write off taken in the last quarter of the previous financial year. As previously communicated in Q1 financial year 25, the bank adopted a conservative approach by increasing the risk weight 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 weight 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 Tire 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 the Board has recommended a dividend of rupees 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 efficiencies. 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 this area. 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 ruling 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 workplace retention efforts and the strategic use of technologies like aeps et cetera.
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 micro banking customers, enhancing field level collections. We are now set to gradually scale this initiative across our all networks. In parallel we are making steady progress on key digital liability onboarding journeys including savings and current account opening. In the government payment ecosystem. We have expanded our capabilities beyond GST and CBDT integrations. 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 advancers growth with a strong emphasis on stable granular retail deposits. We aim to expand our asset book with an improved secured mix, enhanced 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 advanced growth of 15 to 17% 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 27. 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 1731 branches and nearly 4594 bus, we aim to depend and mobilize more granular deposits.
These initiatives 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 through active activation of our distribution network in brunch, 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 neem, 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’ll 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 to 20 basis points from the current level or 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 period of financial 2526 we are targeting to reach 1.5 to 1.6% on full year basis of the credit cost 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 to 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 and continued investment in our core capabilities.
With that, I now Hand over to Rajiv Mantri, CFO to take you through the details of the financials. Thank you.
Rajiv mantri — CFO
Thank you Sengu Prasar 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 1.37 lakh crore rupees 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 Rs.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. EB Group lending represents 26% of the advances as well at 15%, wholesale banking 27%, housing 24% and retail loans have reached to 8% respectively. The bank has also made significant progress in geographical diversification. Over the past few years, share of advances from the east and Northeast regions have decreased by 14% from 53% in FY22 to 39% in FY25. 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 1.51 lakh crores compared to 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 a share of bulk deposits to total deposits marginally reduced quarter on quarter at 31%. CASA deposits stood at rupees 47,437 crore reflecting a 5% year on year decline but an increase of 6% quarter on quarter. While the growth has been on 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 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 relationship 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 55% 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 NPH in Q4FY25 improved slightly to 97.9% compared to 97.7% in Q3FY25, a 20 basis points improvement for the EB book collection efficiency excluding NPAs in March improved to 98.2% up from 97.5% in December 2024.
And 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 EV. For further details on collection efficiency you can refer to Slide 19 of our investor deck which has more detail the collection efficiency for our PAR book which excludes the DPD book was at nearly 99.5% for the month of March 25. On asset quality the gross slippages rose to R1,748 crore versus rupees 161 crore in Q3 with the primary contributor being the EEB segment. Slippages in the EEB book increased to rupees 1349 crore up from rupees 1,196 crores in Q3.
FY25 recoveries and upgrades improved slightly during the quarter reaching rupees 355 crore compared to rupees 282 crore in QCFY25 at the bank level. Additionally, the bank undertook write offs amounting to rupees 1,136 crore during the quarter. As a result the gross NPA the net NPA ratios remained stable on sequential basis at 4.7% and 1.3% respectively. The provision coverage ratio increased marginally to 73.7% excluding the write offs and including the write off as Patas had talked about earlier was higher at about 86.5%. The overall EB DPD pool SMA01 and 2 stood at Rupees18.95 crore representing 3.4% of EB advances in Q4 compared to 3.8% in Q3FY25 representing a 40 basis points improvement.
This reflects an absolute quarter on quarter reduction of Rupees 223crores 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 with focused 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 Day. Credit costs, though remain 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 FY25 the credit cost 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 Q4FY25 stood at rupees 2756crores 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 mixed towards secured products and the impact of elevated slippages as well as the risk in the microfinance segment. As a result of builder microfinance segment growth was lesser compared to the last year Net interest margin for Q4FY25 came in at 6.7% down from 6.9% in Q3FY25 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 to 7.5%. Net total income for Q4FY25 stood at Rs. 3,456 crores registering a 3% year on year decline. Sequential drop was primarily due to one time gains recorded in the last quarter including the claim payout from CGFMU and recoveries under the Assam Relief Scheme. In the MFI portfolio operating expenses rose 10% year on year to rupees 1884 crore in Q4FY25 reflecting continued investments in people, technology and infrastructure and based on growth in non EEB business volumes.
As a result, 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 Q4FY25 came in at rupees 1571 crore. Provisions for Q4FY25 stood at rupees 1260crore down 29% year on year. Despite the year on year decline as well as the quarter on quarter decline, provisions remain 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 rupees 123crores 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 PTR levels that we have maintained. The bank reported a net profit of rupees 318 crores in the quarter compared to 55 crores in Q4FY 2024. Thank you all for your patience hearing and on behalf of the management team I once again thank you for participating in the call. We’ll now open up for questions.
operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press 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 handset 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 Batsil Paraksha from Nightstone Capital Management. Please go ahead.
Questions and Answers:
Batshil paraksha
Yeah, hi. Thank you for the opportunity. Couple of bookkeeping questions. So what will be our proportion in Karnataka and Tamil Nadu as a percentage of advances?
VIKASH MANDRA
So Tamil Nadu we have share of Only less than 1% in the total advances for the day. And Karnataka is 1.1%. 1.1%. So both are very negligible. And the DPT book is also very low. And only I would say the collection efficiency is also around 97 percentage in these two states. So we are not that much impacted into whatever is happening in both these states.
Batshil paraksha
And these are the percentages of total EB error?
VIKASH MANDRA
Yes. And number two is that you have seen that in both the states the regulations have excluded the bank. The banks are not a part of the regulation. So of course this will have some, I would say impact on the people or the borrowers there for the day. But in general the other regulatory measures are not applicable for us.
Batshil paraksha
Got it. And secondly, what will be our fixed book percentage?
VIKASH MANDRA
Are you talking about fixed rate book?
Batshil paraksha
Yeah, fixed rate.
VIKASH MANDRA
So 48. It’s around 48 percentage. 48% of our loan book is around fixed rate.
Batshil paraksha
Okay. Okay. Thank you. That’s it.
operator
Thank you. The next question is from the line of hidden engineer from clsa. Please go ahead.
Unidentified Speaker
Yeah. Hi team. Congrats on the quarter in these turbulent times. Just a few questions. Firstly on interest reversal, what was the interest reversal this quarter versus a similar number in 4QFY24.
VIKASH MANDRA
Sorry, could you repeat that question.
Unidentified Speaker
For the quarter?
VIKASH MANDRA
Yeah, give us a couple of minutes, we’ll come back on this question.
Unidentified Speaker
Okay, sure. And secondly, what sort of impact do we expect on our deposit cost after this rate cut we’ve done on sa? As well as overall, we are seeing term deposit rate for the system, wholesale and retail going down. Can you guide us to some sort of cost of deposits for FY26?
VIKASH MANDRA
So we have also reduced our interest rates on both savings bank and term deposits. So the rationalization has already been taken place. It will come effect from the 1st of May onwards. So we are expecting that around 30 basis point where we were giving on the highest bracket. So 8.05. It has come down to 7.75. But of course the transmission in the deposit will not take place immediately. It will just take place as and when this deposit matures and renews. But in the advances section for the day almost close to 40% of our books which are on the EBR.
The transmission has already been passed. So definitely I can say some effect will be there for the first two quarters but going forward it will be well managed.
Batshil paraksha
We don’t have a specific guidance on the exact cost of deposits reduction but as sir said there is action being done both on the savings and term deposit to see in certain buckets where we can actually reduce the cost and I think the results of that will come through the year.
Unidentified Speaker
Okay. And I think I heard sir say 40% is EDLR linked loans.
VIKASH MANDRA
So I’ll 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.
Unidentified Speaker
And EBNR.
VIKASH MANDRA
In the remaining part 5% is only NCLR and all rest are EBLR. So, so the remaining 45% of the floating loan of that half would be EBLR based and another half would be ancillary. Ancillaries are on Piper. We have a very small portion in.
Unidentified Speaker
On your previous question on interest reversal. During the quarter we had 69 crores.
Batshil paraksha
As interest reversal and what was it on yoy comparison?
VIKASH MANDRA
We’ll get back to you pl on that.
Batshil paraksha
Sure, sure. And also this 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 MCLR? How much is EBLR?
VIKASH MANDRA
So to give you 55% is fixed and of the balance 45% our EBLR is 26% and NCLR is coming 19%.
Batshil paraksha
And just my last question on your MSI customers now around 8% of them are GNPAs. What percent of them would be actually paying some amount of EMI? So in simple words, collection efficiency from the GNPA book.
VIKASH MANDRA
Yeah. The March May we collected around 80 crores from from this collection from which has been there but I think sometimes any highlight.
Vishal
This is Vishal here. Overall from 8% number close to 25% of that 8% is paying us some amount. Some amount comes to one EMI or. Less than that but some amount keeps on coming.
Batshil paraksha
Okay, 25% of the 8% number. Yeah, got it. Okay, that’s it from my end these are all my questions. Thank you and wish you all the very best.
operator
Thank you.
VIKASH MANDRA
Thank you.
operator
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.
Mohit jain
Hello, can you hear me sir?
VIKASH MANDRA
Yeah.
Batshil paraksha
Yes we can hear you.
Mohit jain
Hi. Yeah, good evening sir. So my first question is in regard to the resume book for the EEV portfolio. If I’m looking at western on this quarter, we have seen a slight increase there in the SMS 0 bucket. So what can be the particular reason behind it? And also considering the fact in the amount of interest we have in some disturbances in some districts of West Bengal. So how adversely has it further been affected by it?
VIKASH MANDRA
One is because of the holidays. The last three days were holiday investment all as well, not 29th. So all of whatever the demands raised during this period the borrowers could not pay. But this has been eventually corrected. Most of the accounts have been eventually corrected. The trend we are seeing in the current month because of some. There was some media reports that in some districts they have some kind of disturbances. So any effect.
Batshil paraksha
So Musidabad district we have our 4% share of the in NPA we are having around 4% and almost 88 percentage, I would say in April almost 88 percentage are regular. The SMA 0 book percentage is 6%. SMA 1 book is only 1% and SMA 2 is another 1%. So we have, I can give the latest figure as on april we have 2151 crores outstanding. So of which only 91 crores is in NPS. The other also delinquency book is very small.
Mohit jain
Okay, answer the other question which I’m having is on the long term guidance which we are given that you know we’ll be looking at our credit cost of somewhere near 1.5 to 1.6% over the next two, three years. And I guess we have earlier said that in the earlier conversations it has been said that, you know, for EV book our target is around 2 to 3% in terms of the credit cost. Sadh Looking at slide 21 it seems that the loans which we have disbursed over last one year the NPA in Devo’s book is coming at 4%, 3.5%, 4% which is again very much on a higher side in respect of even the recent originations.
So now if this is the trend we are having in the recent organization, what gives us the confidence that over a longer period of time the NPA of the is going to come down to, you know, something like two, three.
VIKASH MANDRA
So you can, if you look at those figures you see it was 4% in financial year 24, Q3 and Q4. But if you look at the financial 25 figures it has come down from 2.8% then Q2 is 1%, Q3 and Q4 you can just see Q3 is 0.1% and Q4 is nil. So gradually there is an improvement also. And as what Rajiv has also said that he in the overall DPD book also we are finding that there is an improvement. It has sequentially it is coming down almost 230, 40 crores. It has already come down.
The quality of these advances we are now imposed the guardrails.
Batshil paraksha
As we all know that for the.
VIKASH MANDRA
Day we had our own guardrails. And apart from that the entry in guardrails have also been enforced. So this is definitely is impacting for the 12 quarters where the business growth is will get little bit impacted but the stress level will also be contained to a large extent. So going forward we believe that loan loss provisions would be comparatively lesser, especially the incremental loan loss provision and there will be a growth in the big business. We have also kept a guidance of around 5,000 crores of growth in this EEB segment. So overall with the growth in the business and also with the decrease in the incremental loan loss provision, the credit costs will improve.
And I think just to supplement couple of other points, one is if you look at our number of lender criteria we’ve already been sort of complying with to a large extent 92% of book is bandhan plus 2. So to the extent of that the over leveraging situation in our portfolio is fairly limited. And also as you know that most of these loans are one year tenor and 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.
But thereafter as the improvement comes through, I think we’ll be in a good boat to be able to come out of that.
Batshil paraksha
When if you look up at our overall credit cost also so 2.9% we could manage it for the entire year. So While the quarter Q Q4 credit cost is quite high. So the delinquency book as you can see in that slide also for the day that it is actually coming down, the loans which are given in financial 25, their quality is much better. So we expect the micro finance credit cost to come down from the current levels. And because of the change in the mix towards higher secured, we should also get further benefit. And that is why the guidance of 1.5 to 1.7% over the next two to three years.
Mohit jain
Just for one clarification, you said about a figure of 5000 crores. That is the EB disbursement we are looking for the current year are the EM growth for the current year for FY26.
VIKASH MANDRA
It’s a net growth what we are looking at here.
Batshil paraksha
Okay. Yes. Net growth of 5000 crores in the EV book for the current year for 26. Correct.
Mohit jain
Thank you sir. Thanks a lot for answering the question.
operator
Thank you. The next question is from the line of Anand Swaminathan from Bank of America. Please go ahead.
Anand
Thank you. I have a couple of questions on the EEB bulk. So just circling back to the 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 dragging down your collection efficiency to 98.2. So that’s the number one question. Number two, in terms of disbursal rates I get the 5,000 crore number. But in terms of month or quarter, when do we expect getting back to a normalized disposal level during the year? Those are my two questions. Thank you.
VIKASH MANDRA
To answer your first question, are states which are not performing the way performance has happened in the east but Maharashtra, Gujarat and Tamil Nadu, Karnataka, which is small for us. There are three of the three, three and a half, four states which are not doing well, parts of Gujarat and Samantha, on the second question, I think. The first quarter is going to be. A muted one and I think quarter two onward the dispersal should pick up. But by the end of quarter three I think we will have a hopefully a normal year, a quarter the way it was there prior to couple of years. And that should stabilize over quarter three and quarter four. But first two quarters, specifically the first one will have a muted growth only.
Anand
Sure. Thank you. Just to kind of clarify, Maharashtra should. Be close to 96% even in March.
VIKASH MANDRA
March was slightly better. 96, 96 and a half. On the collection efficiency front, Tamil Nadu was 96 and Karnataka similar. 96.5.
VIKASH MANDRA
Okay.
Anand
And is there anything localized which is the problem which is keeping these states. A problem or it’s just over leverage. Issue which is extended
VIKASH MANDRA
primarily at the pan India level. It’s a similar over leverage issue. And like Ragheep clarified also that Bandan plus two relationship for us it’s much, much higher than the counterparts and it’s like 92% and there are small problems like Morsi Dabad has come up in the last two months only. So that has disrupted a bit for a couple of months. But we don’t see this continuing for long because then things stabilize and then after four, five weeks cycle it comes back to normalcy. So there have been disruptions in localized reception up and running in some places but not so rampant.
The impact is more in Karnataka, Tamil Nadu over the last three, four months.
Anand
Sure. Thank you. And lastly in April since the implementation. Of the new guard, has there been. Any change in production efficiency?
VIKASH MANDRA
Can’t get it. Please Sorry Anand, can you repeat that?
Anand
In April after the implementation of the. New guardrails has there been any change in collection efficiency in any of the states?
VIKASH MANDRA
So collection efficiencies for the month of April have remained stable. However like the impact of barters have been more so on the disbursement side with free lender now the maximum you could give. Obviously there are other companies who also grant the same customer. So that has got. But I think over a period of time things will stabilize. Otherwise we don’t see any collection efficiencies really dipping down in the month of April. Apart from one or two places where you know which we spoke about earlier. Also Anand, I think April has had a number of holidays. So I think we’ll have to see a more normal month like May to be able to get the full picture.
VIKASH MANDRA
Because these are mostly weekly repayments. So holidays actually sometimes temporarily affect the quality of the affect but that is normally gets taken repaid.
Anand
Sure. Thank you. That’s very useful. Thank you.
VIKASH MANDRA
And percentage wise while the delinquency is high in Tamil Nadu and Karnataka but overall is very very low. It’s only 103 and 400 crores around in this group state.
operator
Thank you. The next question is from the line of MB Mahesh from Kotak Securities. Please go ahead.
MB Mahesh
So just. Just on the. On the question on this again you’ve kind of indicated what is the current month performance as we gave a number. I just wanted to fly.
Batshil paraksha
On the collection efficiency. Sorry, which parameter?
Batshil paraksha
No, the SMA01 into I.
MB Mahesh
You. You had mentioned a number that the performance had improved in April. Just trying to check what. What. What was the comment on that?
VIKASH MANDRA
Okay. There’S still you know months. So we have still collecting. But I can tell you two days back the pages percentage has actually come down. So almost I am having a positive marginal positivity is there compared to March. But nice 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 EV we are seeing some bit of a reduction.
MB Mahesh
Okay, 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 work over the next two quarters given the near term numbers that you are looking at in the on the EV book?
VIKASH MANDRA
I don’t think UMEH should give specific guidance on quarterly basis. But I think as we have said due to the risk which is still there in the EV segment in the industry, in the MFI segment in industry and with the tightening of further tightening on the criteria from four to three, I think it’s natural to expect the next two quarters there will be some continued strength, albeit we do expect some marginal improvement quarter on quarter. But with, you know, as Vishal earlier mentioned by Q3 is when we expect, I think some sort of turnaround to happen.
MB Mahesh
Okay, my last question sir, you had given us a rough indicative roe decomposition of how we should look at the franchise in the medium term. You have a margins 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?
VIKASH MANDRA
So maybe I can give you broad indication on that. I think as our secured mix increases further three years we should expect I think margins the NIMS to come down by say another 50 to 60 basis points. But what we are doing to offset some of the impact is focus on other income and 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. So over the next two years I think we will invest further another 10 to 20 basis points point increase.
But thereafter I think the efficiencies of scale should start coming in and then credit cost is where we should start seeing a big reduction, right? And as a result of which.
VIKASH MANDRA
Fee. Income will be also aided by newer initiatives such as transaction banking. We recently got some trade products that we’ve launched so those should start helping us as well. But 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 ROA. The latest quarter is lower. But from there on a on a glide path basis we expect to reach around 1.3 to 1% of ROA by the end of the next two to.
VIKASH MANDRA
Three years and most of the containing the slippages. So we are not expecting that because this year Q4 EEV segment slippages was almost 10% which will substantially come down that we are expecting.
MB Mahesh
Just 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 roas seems to be much lower than you seem to be targeting. Trying to understand if the assessment of the numbers are right.
VIKASH MANDRA
Yeah, so 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 and as we think we are investing to be able to grow that. So 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, that will really depend upon these two factors. But what we have not factored in this cycle is let’s say further improvements to cost of funds. What we not factored is of further operational efficiency that we can drive because we are actually actively digitizing and bringing a lot of automation across our processes, both our customer infrastructure and internally.
So some of these factors should give some further augmentation. That if you look at the annual RA annualized on full year basis, it is 1.5%. Q1 and Q2 were good, Q3 and Q4 were bad. So the reverse will happen for this year. Q1 and Q2 will be comparatively little more challenging, whereas Q3 and Q4 will be good. So that that going by the same philosophy I think is 1.5, 1.6 can be maintained for this year. And this is the guidance we have given for the next three years. Overall the larger transformation and the transition as MD pointed out, that will take couple of years to come through and obviously at this point we are targeting that kind of an ROE and as it ramps out maybe over the next four to six quarters we will look at it and then come back to you with the first guidance.
MB Mahesh
Sure. Perfect. Thank you.
operator
Thank you. The next question is from the line of Jay Mantra from ICICI Securities. Please go ahead.
Jay Mantra
Hi, good evening sir. A few questions. First on capital, sir. So have we taken the full impact of RWA decline or is there any some loan book where, you know, the lower risk rate are yet to be applied?
VIKASH MANDRA
Yeah, so maybe I’ll take that there. Animal. So you know, as you’ve seen the RBI clarification, the surplus came through in February 25th and as part of which 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 I mentioned and we’ve been able to take the benefit of that in the RWA calculation. We’ve also we are cognizant of the change that is coming from the 1st of April which is for lending to NBSCs. And I think that should give some further benefit to the RWA calculation that started included in the March number.
So that’s applicable only from 1st of April. But the improvement on the total CRR of 18.7% which is the number now compared to the earlier numbers is really. Based on the February new clarification.
Jay Mantra
Sure. So 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 ev.
VIKASH MANDRA
That is correct.
Jay Mantra
Yeah sure. And secondly sir, on. I mean CGFMU on incremental disbursement are we taking cgm a few insurance or. We have. We have discontinued that thing at present.
VIKASH MANDRA
We are not taking it. Yes you can. So 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 average 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 we make sort of next beneficial for us. So that’s the standard as of now we will. We are evaluating very actively.
Batshil paraksha
Sure. And of the non EEB slippages of 3.5 billion, how much was from home loan and maybe the wholesale segment.
VIKASH MANDRA
So wholesale segments of leakages is very low. It is only 2.6% in the Q4 for the year. And housing finance of course the slippages has been 2.3% a major part from the legacy books what we have acquired from Grow Finance. So for that. So that is the. I think just to clarify on housing, while the GROSS Comes to 2.3% a large part of it gets collected during the month and on a net basis I think we end up at around 0.6% or so.
VIKASH MANDRA
It may be last March it was zero. Almost it was zero. Correction.
Jay Mantra
Would you have the rupees crore number? I mean the percentage is sometimes tricky or I can just multiply.
VIKASH MANDRA
So housing on a net basis was only 70 crores of net addition on a gross page of 180.
Jay Mantra
Okay, sure. And lastly sir, OPEX growth, while I take your. I mean we last quarter and last two quarters we have said that the OPEX score will be higher than loan growth. But is 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 we are doing, maybe people processes.
VIKASH MANDRA
So I can take that. I think there are two or three key pieces. One is the newer businesses or the secured business where we are dialing up the focus require investments in people and technology. Because we are making sure that we have the right talent in the right areas, in the right organization geographies in the right segments. And also we are investing in the latest state of the art technology. As you know, last year we had the core banking system upgrade and this now we are focusing on further system like loan origination which is going to with the state of the art LOS providers such as Salesforce.
And we are going to make sure that it has an enhanced customer experience that comes through. So I think that is the focus in terms of both the talent as well as the technology that is being deployed. And at the same time I think for the distribution network in terms of branches to be able to drive a deposit growth. So actually yes, basically three things. One is that we have opened many branches in the last quarter of the previous financial year, not this year and that that expenses are adding up. But 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. But that’s as Rajiv has said that both were necessary and the business will also come on this stabilized. And 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 but we have already taken the resources. Similarly in other areas also there have been some people recruitment take place. But yes, the strength of these will be derived in the coming months to come.
Jay Mantra
Lastly sir, just a small clarification. I think in the SMA 0 increase in SMA 0 investment you mentioned that that has also rolled back, right? So 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 how you said that 2.3% rise, the 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 if you in percentage terms, if you have that number.
VIKASH MANDRA
So what we have done, see 30 was being a holiday and 31st was already demand date. That’s why it has elevated from 0.9 to 2.3 of all that which have gone forward. I’ve got 95% of the ones which is carried forward means we collected 92.7, 8.3 which got forward. We collected 95% of that in the next seven days. So that one week collection has already come through. But again this month we had four, five holidays. So we will not see this kind of an elevation. It’s a one timer and I think most of it has got collected thus far.
Jay Mantra
Sure. Thank you so much.
VIKASH MANDRA
In our EB book. So we for this group close we have a weekly requirement period and that do get affected whenever there is a holiday and more so if there are consecutive holidays. So every month this month also we are having three, four days like that holiday. So it will, 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. But overall there is no stress because that those things get collected. So you see SMA 1 and 2 those numbers have come down and this 31st of March was one number. And if it happens again on the last day of the month, obviously the last day they didn’t get impacted otherwise over the period of the month we collect. So this one we specifically focused in the next one week we were able to collect 95% of the 8 percentage advances. So when it became typically the same number of what typically goes to each cycle.
operator
Thank you. The next question is from the line of Paran Subramaniam from Investec Capital. Please go ahead.
Paran
Yeah, Hi. Thanks for taking my question. So my question is mainly on looking at next year, right. So we’ve given guidance for the next two to three years. But 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 the operating.
VIKASH MANDRA
I have told you very clearly if you look into the current year, Q1 Q2 was good. Q3 Q4 was comparatively bad for the day and what all RO we have ROA we have maintained at 1.5. So this year it is just a reverse Q1 Q2 will be a little bit bad. But Q3 Q4 we are expecting to be. Yes sir. But at the same time in the first two quarters our operating profit profile.
Paran
Was way higher and it looks like it has reduced quite significantly. Right. So is this Q1? Yeah.
VIKASH MANDRA
Q1 Q2 of this quarter was quite good. So operating profit, income, EB loan book, everything was quite good for Q1 Q2 positive. But Q3, Q4, suddenly the situations have little bit become I would say challenging. So this trend is continuing but it is diminishing. So I think within by Q2 all these problems will be more or less addressed. So Q3, Q4 will be a good year for doing business. So we are expecting the same way, the same trend will be there in that way. And I think further to your question, you’re right, the secured mix percentage has gone up. So to that extent the NIMS margin pressure are there. But as mentioned earlier, there are actions being taken such as reducing the cost of funds which should gave some bit of an upset. So we’ll actively look at the avenues available to us. But yes, structurally we’re moving towards a higher secured mix. I think the impact of that will be there.
Paran
Okay, got that Just on this bit. Again on operating profit. Right. So we are at about, you know, 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% and that is lower than where we generally operated. And if I heard correctly, we’re talking. About mix shift bringing margins down and still investing in the business. So how does this number look say. How is it going to evolve over. The next year specifically and then beyond that?
VIKASH MANDRA
Yeah, so 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. But let’s say as I mentioned, once the cycle starts to turn for micro finance, we should see some relief coming from there and the improvement and more normalcy. And 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. So it’s a sort of a glide path from the current level to reach the 1.82 for 9% over the next two to three years.
Got it.
Paran
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 point? It’s okay if I can get this offline as well.
VIKASH MANDRA
So as we have told that almost 25% we have already given the of our loan book, we have already given the effect which is under ebay the fixed rate loans will largely be unimpacted till we decide a change in the interest rate. So but yes, one thing is there that the effect of the benefit on account of Reduction in interest rates and deposit. That will only come over a period of time. It will not be immediate.
Paran
I got that. Sir. I was asking on the interest reversals on the slippages that would have some margin pressure.
VIKASH MANDRA
Yeah, yeah. Okay. Okay. Okay. Thanks a lot for all this. All the best.
Paran
Thank you.
operator
Thank you. The next question is from the line of Ankit Bihani from Nomoda. Please go ahead.
Ankit Bihani
Thank you for the opportunity. I just wanted to know what is the need on our microfinance portfolio and non microfinance portfolio. Currently.
VIKASH MANDRA
I think the differential between the two E is roughly around 10%. So EV is I think around or upwards of 20%. So 22. Yeah, 2010. And the other part was that what had led to the negative tax in this quarter.
VIKASH MANDRA
Yeah, I can clarify that. So 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 asset on the ESOPs, as you recollect in the last quarter we had an accounting impact on ESOP close to around 166 crores. And as part of the accounting review I think the deferred tax asset on that got created in this particular quarter. So that is roughly around 61 crores. And in addition to that there is old, 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.
VIKASH MANDRA
Additional amount has been reduced. So in total about 87 crores between the two items.
Ankit Bihani
Okay, got it. Thank you.
operator
Thank you ladies and gentlemen. That was the last question for today. I now hand the conference over to the management for closing comments.
VIKASH MANDRA
Okay. 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. So there has been a good increase in our net profit and also operating profit. And probably we are one of the very few financial institutions having sizable assets in microfinance have been able to give this result for the day. That’s one plus point. I would just like to tell all the analysts. Thank you.
Batshil paraksha
Thank you all for joining in. Thank you very much.
operator
Thank you on behalf of Bandhan Bank. That concludes this conference. Thank you for joining us. And you may now disconnect your lines.