IP

Issue Size : ₹ 4,473.02 Crore

Issue Period: 15th Mar ‘18 to 19th Mar ‘18

Analysis
 Competition Overview Banking Sector in India
Company Face PE India is one of the fastest-growing economies in the world. The Government of India has adopted a framework
Name Value EPS Ratio RoNW NAV P/BV targeting inflation while modernizing its central banking system. Indian banking industry has recently witnessed the
Bandhan roll-out of innovative banking models like payments and small finance banks.
Bank Ltd 10 10.15 36.94 25.01% 40.6 4.9 The Indian banking system consists of 27 public sector banks, 26 private sector banks, 46 foreign banks, 56 regional
Axis Bank rural banks, 1,574 urban cooperative banks and 93,913 rural cooperative banks, in addition to cooperative credit
Ltd 2 16.54 32.26 7.04% 235.41 3.1 institutions. Access to banking system has also improved over the years due to persistent government efforts to
HDFC Bank promote banking-technology and promote expansion in unbanked and non-metropolitan regions.
Ltd 2 59.95 30.75 16.65% 358.21 5.3 Indian banks are increasingly focusing on adopting an integrated approach to risk management. Banks have already
IndusInd embraced the international banking supervision accord of Basel II, and the majority of the banks already meet capital
Bank Ltd 10 48.06 34.59 13.90% 344.91 2.1 requirements of Basel III, which has a deadline of March 31, 2019.
ICICI Bank A new portal named 'Udyami Mitra' has been launched by the Small Industries Development Bank of India (SIDBI)
Ltd 2 17.51 17.43 10.84% 179.63 2.4 with the aim of improving credit availability to Micro, Small and Medium Enterprises' (MSMEs). The Insolvency and
IDFC Bank Bankruptcy Code (Amendment) Ordinance, 2017 Bill has been passed and is expected to strengthen the banking
Ltd 10 3 18.2 7.24% 43.18 1.2 sector.
Kotak Rising incomes are expected to enhance the need for banking services in rural areas and therefore drive the growth of
Mahindra the sector. The RBI has relaxed its branch licensing policy, thereby allowing banks to set-up new offices in tier-2 to
Bank 5 26.89 37.37 12.86% 209.09 5.8 tier-6 centers, without prior approval from RBI.
RBL Bank
Ltd 10 12.61 41.21 10.29% 115.57 4 Factors contributing to the growth of Banking industry
AU Small
Finance • The bank recapitalization plan by Government of India is expected to push credit growth in the country to 15 per
Bank 10 11.73 59.53 38.33% 69.92 7 cent and as a result help the GDP grow by 7 per cent in FY19. Public and Private sector banks are lining up to raise
funds via qualified institutional placements (QIP), backed by better investor sentiment after the Government of
India's bank recapitalization plan and an upgrade in India's sovereign rating by Moody's Investor Service
• The Government of India is planning to introduce a two percentage point discount in the Goods and Services Tax
(GST) on business-to-consumer (B2C) transactions made via digital payments.
• Enhanced spending on infrastructure, speedy implementation of projects and continuation of reforms are expected
to provide further impetus to growth. All these factors suggest that India’s banking sector is also poised for robust
growth as the rapidly growing business would turn to banks for their credit needs.
• The advancements in technology have brought the mobile and internet banking services to the fore. The banking
sector is laying greater emphasis on providing improved services to their clients and also upgrading their
technology infrastructure, in order to enhance the customer’s overall experience as well as give banks a
competitive edge.
 Summary
BANDHAN BANK LIMITED
Issue Period 15th to 19th MAR, 2018
Bandhan bank was incorporated in 2014 and began its operations in August 2015 when Bandhan Financial Services Limited
Face Value (₹) 10 per share
(“BFSL”), parent company, transferred the entire microfinance business. Bandhan bank is a commercial bank focused on serving
Issue Size 119280494 shares
underbanked and underpenetrated markets in India. Bank has license that permits it to provide banking services in pan-India
Price Range (₹) 370-375 INR
across different customer segments.
Minimum bid size 40 shares
Bandhan bank currently offer a variety of asset and liability products and services designed for micro banking and general banking.
Total equity Share after 1192804944 shares Its products consist of retail loans including a substantial portfolio of micro loans, as well as micro, small and medium enterprise
IPO
(“SME”) loans and small enterprise loans. 96.49% of bank Gross Advances were in priority sector lending (“PSL”) compliant with
the Reserve Bank of India (“RBI’s”) PSL requirements. Its liability products consist of savings accounts, current accounts and a
variety of fixed deposit accounts. Bandhan bank has built a strong base of current account and savings account deposits, which
together stood at ₹84,018.45 million. Apart form this bank also offer other banking products and services to generate non-interest
income and take care of the other need of its customer.

Objects of the issue

The Issue comprises of a Fresh Issue and an Offer for Sale. The objects of the Fresh Issue are to augment Bank’s Tier-I capital base
to meet future capital requirements such as organic and inorganic growth and expansion and to comply with regulatory
requirements for enhanced capital base, as may be prescribed in the future.

Growth Factors for the company

• Bandhan bank operating Model Focused on Serving Underbanked and Underpenetrated Markets in India. Bank reach its
customer through extensive door step services centers which is low overhead and cost-effective centers.
• Consistent Track Record of Growing a Quality Asset and Liability Franchise due to broad and diversified range of asset and
liability products to the customers, while maintaining strong asset quality.
• Bandhan bank has extremely low-cost Physical distribution network across country specially in eastern part of the country
which includes branches, ATM and DSCs.
• Bandhan bank mission is to provide its customers accessible, simple, cost-effective and innovative financial solutions in a
courteous and responsible manner.
• Consistent Financial Performance and Robust Capital Base. Bank has grown from Gross Advances (including IBPC/Assignment)
of ₹155,784.35 million as of March 31, 2016, to ₹243,643.89 million as of December 31, 2017, with a total deposit from
₹120,887.48 million as of March 31, 2016, to ₹252,939.56 million as of December 31, 2017.
• Bandhan bank has very experienced and professional team, as well as backed by an active independent board which provides
the bank with robust corporate governance oversight. Eight out of the twelve directors on bank board are Independent
Directors, and each member possesses knowledge and experience in the fields of microfinance and banking.
 Mar'15 Mar'16 Mar'17 Risk Factors internal to the company
Net Interest income(Rs. Cr.) 0 933 2404 • A substantial portion of bank operations are located in East and Northeast India, making them
YoY% NA NA 157.70 vulnerable to risks associated with having geographically concentrated operations.
• Bank derive a substantial portion of interest income from advances that are due within one year, and a
Total Income 8 1731 4320
significant reduction in these short-term advances may result in a corresponding decrease in bank
YoY% NA 21676.60 149.50 interest income.
Adjusted EPS(Rs.) 0 2.51 10.15 • Microcredit lending has its own unique risks and, as a result, bank may experience increased levels of
YoY% NA NA 304.40 non- performing loans and related provisions and write-offs that negatively impact bank results of
operations.
Book Value Per Share(RS) 0 30.45 40.6
• Bandhan Bank rely primarily on deposits as a low-cost means of funding bank loan portfolio and there is
YoY% NA NA 33.30 no guarantee that bank will be able to source sufficient deposits or alternative funding to support
business.
Net Profit/Total fund(%) 0 2.79 4.45 • Micro finance loan portfolio is not supported by any collateral that could help ensure repayment of the
loan, and in the event of non-payment by a borrower of one of these loans, Bank may be unable to
Net NPA to Net Advance 0 0.08 0.36 collect the unpaid balance.
• Micro finance bank business is vulnerable to interest rate and investment-related risks. Volatility in
CAGR 5 years 3 years 1 year interest rates, value of investments and other market conditions could adversely affect bank net interest
margin, the value of fixed income portfolio, income from treasury operations, the quality of loan
Net Interest Income% NA NA 157.70 portfolio and bank financial performance.
Total Income % NA NA 149.50
Adjusted EPS % NA NA 304.40 Analysis and Opinion
The bank has achieved high scalability and execution strength on both sides of the balance sheet. As of
Book Value Per share % Na Na 33.30 December 31, 2017, Bandhan Bank’s deposits and gross advances (including IBPC/assignment) stood at
Rs253bn and Rs244bn respectively. It has grown from Rs121bn and Rs156bn respectively as at FY16 end.
Key Financials Ratios Mar‘15 Mar‘16 Mar‘17 Despite substantial investments for setting-up banking operations and expanding distribution network,
Bandhan Bank has managed its cost metric admirably. Cost ratios are one of the lowest in the banking
industry. It has been made possible by continued emphasis on a low-cost hub and spoke distribution
Interest Earned/Total Income 0 91.34 90.48 model. But at a same time there are some concern associated as well like Bandhan bank has its
NIM% 0 4.82 8.09 operational densely set up in Eastern and North-eastern regions of India with almost 65% of bank
operation presence in few eastern state. Bandhan bank business is highly relies on micro-lending which
RoE% 0.11 14.35 28.58
has its own set of risk and limitation and at last , Indian banking space is facing most of the competition
CASA% 0 21.55 29.43
from existing player and Bandhan bank is relatively a new face and has not seen the challenges at PAN
India level.
Students have published this report only for educational purposes
Rating: Neutral
and not for investment purposes. This report is a personal opinion
and not a recommendation
 Glossary
• GDP: Gross Domestic Product
• Gross Written Premium (GWP): Gross Written Premium is the sum of GDPI and reinsurance inward premium
accepted
• Management expense ratio : commission expense ratio + operating expense ratio
• Return on equity is the ratio of profit after tax to the net worth of a company. It is a measure of the ability of a
company to generate profits on its shareholders’ investments.
• CARG : Compounded Annual Rate of Growth
• CASA: Current and Saving account ratio
• EPS : Earning per share

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