Partha Sengupta, CEO and CEO, Bandhan Bank
Partha Pratim Sengupta, who will take over as MD and CEO of Bandhan Bank in early November, has his work cut out for him.
The Kolkata-based lender, which has grown from a microfinance institution to a universal bank, is in its 10th year of operation. The bank was able to reduce the proportion of the microcredit portfolio over these years. However, microcredit still represents about 50 percent of its loan portfolio. At Rs 61,910 crore, Bandhan’s microloan portfolio is one of the largest among Indian banks.
One of the key priorities for Sengupta will be to engineer a business transformation while building trust with all stakeholders. The most important of these is, of course, the regulator. According to bankers, the Reserve Bank of India’s displeasure with microcredit banks was evident in last November’s circular on risk weights.
While increasing risk weights for consumer loans, the RBI exempted non-banking financial companies (NBFCs) from higher risk weights for loans to microfinance customers. However, banks were asked to increase the risk weight of their microloans.
“Bandhan has to reduce the proportion of microcredit and increase the proportion of secured loans. In doing so, it needs to maintain healthy margins and return on assets,” said a senior banker.
The bank has maintained a net interest margin of 7.6 percent in the two quarters of FY25 and the fourth quarter of FY24. It reported a return on assets of 2.5 percent in the first quarter of the year Fiscal 25 compared to 0.1 percent in the prior quarter and 1.9 percent in the prior-year period.
“Clarity on leadership should shift the focus back to the bank’s fundamentals and strategic direction going forward,” JM Financial said in a note.
“While microfinance as a space remains under asset quality pressure, we believe Bandhan Bank has grown significantly slower than the rest of the industry in this cycle, which should mitigate incremental stress,” he said.
The top post in Bandhan fell vacant after a surprise retirement announcement by its founder Chandra Shekhar Ghosh. Sengupta was deputy general manager and chief credit officer of State Bank of India and also managing director and chief executive officer of Indian Overseas Bank. Sengupta, a banker with nearly four decades of experience, served as chief general manager of SBI Kolkata Circle, from 2016 to 2018, covering West Bengal, Sikkim and the Union Territory of Andaman and Nicobar Islands.
“Sengupta’s experience during his tenure at SBI Kolkata Circle will prove beneficial to Bandhan. However, we need to have visibility into the bank’s future strategy and further changes in top management, if any,” Axis Capital said in a report.
Bandhan Bank had appointed two CEOs – Ratan Kumar Kesh in March 2023 and Rajinder Kumar Babbar in January 2024.
As the bank reduces its involvement in the microlending business, a related challenge around human resources could emerge. Currently, Bandhan has more than 77,500 employees, of which around 45,000 are engaged in the microfinance business. The microfinance business does not require a highly skilled workforce. As the proportion of that business declines, it could be crucial to retrain and upskill that staff for other lines of business.
At the same time, Sengupta inherits a bank in a much better situation than a few years ago, following the Covid-19 pandemic, which negatively affected the microfinance sector.
“Bandhan Bank had seen high formation of non-performing loans in the last two years, following which it had strengthened its credit controls. We believe the bank’s asset quality is likely to perform much better than other microfinance institutions (MFIs), despite some increase in stress in the coming quarters stemming from broader issues in the microfinance environment. Jefferies said in a note.
Last week, another major overrun was resolved with the Credit Guarantee Fund for Micro Units (CGFMU) liquidation claim showing no negative implications for the bank. The National Credit Guarantee Trust Company will pay Rs 314.68 million more to the bank, in addition to the Rs 916 million it had paid in the first tranche last year. On the other hand, the bank also recovered Rs 228 crore from the charged-off accounts that were part of this claim, and will be able to keep this recovered amount in addition to the payment of the NCGTC claim. Therefore, the bank will recognize a total amount of Rs 543 crore as part of other income in its profit and loss account.
Some other parameters of Bandhan Bank are also healthy. The bank’s capital adequacy ratio was 15 percent at the end of June. Deposit mobilization, which registered a year-on-year growth of 22.8 percent, was higher than credit growth. The bank also has 6,297 banking establishments, of which 4,597 are banking units, which could be converted into branches in the future.
Given some of these strong fundamentals, there are opportunities for Bandhan to leapfrog into the next stage of growth. Maintaining a balance between growth and stability, with strong governance standards, could be the top priority for the new CEO.
First published: October 14, 2024 | 18:42 IS
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