Bandhan Bank`s Valuation and Sustainability: Beyond the IPO |
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In 2009, Ghosh felt the necessity to further scale up Bandhan’s lending business in the wake of the organization’s growing concerns about providing loans to people at a comparatively low interest rate. He was convinced of the need to raise a depositors’ fund through the low-cost Current Account and Savings Account (CASA) as a cheaper source of funds to address the issue. Since NBFCs were not allowed to raise deposits, it became necessary for it to transform itself into a bank. Further, Ghosh believed that Bandhan’s transformation into a universal bank would help it to offer small, unsecured loans at a lower rate of interest and broaden the range of financial services it could give borrowers who had little or no access to formal sources of finance... |
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| Bandhan Bank’s business model aimed to address the challenges faced by the traditional financial system in bringing the unprivileged sections together and offering them banking services which were affordable and had a sustainable cost. Being a microfinance lender, its business model revolved around lending to a group of women through the formation of Self Help Groups (SHGs) for a period of 1 year (maximum 2 years) and ensuring timely recovery through weekly instalment payments... |
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| As a full-fledged bank, Bandhan Bank had to adhere to the RBI direction of listing publicly and reducing promoter holding within the first three years of its operations. To meet regulatory compliance, the bank decided to go public with its IPO, which it felt would also help in augmenting its Tier-I capital base to meet its future capital requirements. This capital infusion would help the bank sustain its loan growth, which might not necessarily come through branch network expansion, the bank said.... |
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| After satisfying the regulatory mandate of public listing, Bandhan had to comply with the RBI direction to reduce the promoter holding in the bank. As per the RBI licensing condition for a bank, the promoters’ holding was to be brought down to 40% within three years of its starting operations, which ended on August 23, 2018, for Bandhan. The promoter and promoter group owned nearly an 89.62% stake in Bandhan before its IPO, which fell to 82.28% as of June 2018. .... |
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| Bandhan Bank’s micro-lending focused business model (mainly unsecured lending) left analysts skeptical about the valuation compared to other established private-sector banks that relied on a secured basis. They suspected that though the bank was still in its infancy and not all numbers were public, the valuation demanded by the bank was too much, particularly as it expanded into the non-micro finance business which would yield lower returns. ... |
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| Being home to the world’s second largest population of extremely poor behind only Nigeria and just ahead of the Democratic Republic of Congo as of June 2018 (as per the ‘Future Development’ blog ), it remained a key challenge for India to achieve the global goal of ensuring universal financial access by 2020. It was against this backdrop that Bandhan’s long-lasting focus and breakthrough milestones in financial inclusion of the country could contribute immensely, analysts said.... |
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Exhibit I: Balance Sheet of Bandhan Bank (Rs in millions)
Exhibit II: Income Statement of Bandhan Bank (FY2016-2018)
Exhibit III: Key Financial Ratios of Bandhan Bank (FY 2016-2018)
Exhibit IV: Bandhan Bank’s Weighted Average Cost of Capital (WACC) vs. Its Peers (FY 2016-2018)
Exhibit V: Financial Multiples of Bandhan Bank vs. Its Peers (FY 2016-2018)
Exhibit VI: Bandhan Bank Stock Price (Adj. close**) Movement since Inception (Currency in INR)
Exhibit VII: Profitability and Liquidity Ratio of Bandhan Bank vs. Its Peers (FY 2016-2018)
Exhibit VIII: Bandhan Bank’s Growth Parameter Assumptions for FY2019-2023
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