Bandhan Bank Limited

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IPO Price band ₹ 370-375

Index Details Bandhan Bank’s strength lies in microfinance, including a network

Sensex 33,731.2 of 2,633 Doorstep Service Centers (“DSCs”) and 9.9 million micro
Nifty 10,451.8 loan customers as of December 31, 2017. They launched their
Industry Private Bank
general banking business on August 23, 2015 by opening a
greenfield network of 501 bank branches and 50 automated teller
machines (“ATMs”), which as of December 31, 2017 they have grown
Scrip Details to 887 bank branches and 430 ATMs, together serving over 2.1
BVPS (`) 40.6 million general banking customers. Their distribution network is
O/s Shares (Cr) (Post) 11.93 particularly strong in East and Northeast India, with West Bengal,
Price Band Rs 370- 375 Assam and Bihar together accounting for 56.4% and 57.6% of their
FVPS (`) 10.0 branches and DSCs, respectively, though their focus is to expand
across India.

Shareholding Pattern Bandhan has built a strong base of current account and savings
account deposits, which together stood at Rs. 8,401.9 crores as of
Shareholders (Post) %
December 31, 2017, a CASA ratio of 33.2%. Their CASA ratio
Promoters 82.3 provides them a stable source of low-cost funding, allowing them to
Public 17.7 provide cost-effective loans to their target customer base.

IPO NOTE
Total 100.0 As of December 31, 2017, 96.5% of their Gross Advances were in
Priority Sector Lending (“PSL”) compliant with the Reserve Bank of
India (“RBI’s”) PSL requirements. Because their PSL portfolio
significantly exceeds the RBI’s PSL requirements, Bandhan generate
PSL certificates that they can sell to other banks, providing them
with an additional stream of non-interest income.

As of December 31, 2017, their deposits and Gross Advances

(including IBPC/Assignment) stood at Rs. 25,294 crores and Rs.
24,364 crores, respectively. For the 9 months ended December 31,
2017 and 2016, they had Net Interest Margins (“NIMs”) of 9.9% and
10.3%, Return on Equity (“RoE”) of 25.6% and 27.9% and Return on
Assets (“RoA”) of 4.1% and 4.4%, respectively (each on an
annualized basis).

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 ❖ Company Background
Bandhan Bank Limited was incorporated on 23 December 2014 at Kolkata and
began operations on August 23, 2015, when Bandhan Financial Services
Limited (“BFSL”), their ultimate parent company, transferred its entire
microfinance business to them and Bandhan simultaneously commenced
general banking activities.

Bandhan Bank Limited (“Bandhan”) is a commercial bank focused on serving

underbanked and underpenetrated markets in India. Bandhan has a banking
license that permits them to provide banking services pan-India across customer
segments.

The Company has been able to build a strong heterogeneous product profile as
displayed in the diagram below.

Product offerings of Bandhan Bank

Source: Company, Ventura Research

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 ❖ Key investment highlights

• Strong Operating Model Focused on Serving Underbanked and

Underpenetrated Markets

Company’s business model has transitioned over the years, operating as an

NGO and then a non-bank finance company (“NBFC”) before becoming a bank.
Their focus on underbanked and underpenetrated markets allows them to meet
certain regulatory requirements.

The RBI requires that:

• Banks locate at least 25% of their banking outlets in what it calls “unbanked
rural” areas, and
• At least 40% of all lending be made to “priority sectors”, which includes micro
loans.

Therefore, while traditional commercial banks may not be well suited to targeting
unbanked rural areas or providing PSL-compliant lending, Bandhan target these
segments by choice, operating a low-cost network designed to cost-effectively
and profitably reach these segments. In particular, according to CRISIL
Research, Eastern and Northeastern India, which are their strongest markets,
have the lowest presence of bank branches per capita of any regions in India.
As they focus specifically on serving underbanked and underpenetrated
markets, 29.2% of their banking outlets were located in unbanked rural areas
and 96.5% of their Gross Advances were PSL compliant, each as of December
31, 2017.

• Customer-Centric Approach

Bandhan has design products that cater to the specific needs of their customers,
such as offering educational micro loans and healthcare micro loans so that
their customers can further their or their families’ educations and ensure that
they or their families can pay for medical treatment. On the liability side, they
offer a variety of daily deposits, recurring deposits, and other services so that
their customers can realize their savings goals within the means available to
them. Similarly, they insure all their micro loan customers, so that if they pass
away their loan balance is paid off in full without their family needing or feeling
pressured to repay the loans. The company also seeks to pass on the benefits
of their low cost of funds to their customers and since becoming a bank have
lowered their interest rates on micro loans to 18.4% in December 31, 2017.

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 • Doorstep Service Centres (“DSCs”)

The company operates their DSCs and branches on a hub and spoke model,
whereby on average every three to four DSCs are linked to a corresponding
bank branch in their area. Customers of these DSCs automatically become
customers of the associated bank branches, allowing them to open accounts
and conduct their banking needs at the associated branch. Through their DSCs,
Bandhan can provide personalized services near their customers. Moreover,
this “hub and spoke” model provides them with a low cost means of extending
their network deep into underbanked areas in India, as their DSCs have low
overhead. For example, their DSC employees use handheld devices connected
via the Internet to their core banking system to process loan applications,
allowing Bandhan to keep IT costs low compared to a bank branch, which
requires full-fledged computer terminals. In addition to their physical network,
Bandhan also provides debit cards, as well as offer a comprehensive suite of
digital solutions, including a mobile banking app and online banking.

• Leading digital platform for customers and distributors

The company has undertaken several initiatives and developed a mobility

platform to streamline and digitize customer on-boarding and policy issuance
processes, with the aim of making such processes convenient and simple for
the customers. Mobility initiatives have been successfully implemented across
the value chain, resulting in improvements to the productivity of the distribution
partners. During Fiscal 2017, 48.0% of the new applications were sourced
through mobile devices. It has an advanced digital platform that is user-friendly,
customer-centric and capable of guiding the customers and distribution partners
from on-boarding to policy issuance within four days, which has been a key
contributor to the increased digital sales over the years. Introduction of new
products and increased customer traffic can be managed through the digital
platform with limited additional investment. This provides the company with the
requisite flexibility and headroom for exponential future growth in a rapidly
evolving online space. The annualized premium equivalent earned through
online channels for the company increased at a CAGR of 28% between Fiscal
2015 to Fiscal 2017.

• Independent and experienced leadership team

The management team has a strong track record and significant experience in
the microfinance and banking industries. The founder, Managing Director and
Chief Executive Officer, Chandra Shekhar Ghosh, has 37 years of experience in
the Indian microfinance industry. The members of their senior management

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 have a track record that combines professional and entrepreneurial skills in
microfinance and banking, with an average of 23.9 years’ experience in the
financial services industry. The management team is supported by a strong and
independent board, which provides them with robust corporate governance
oversight. 9 out of the 13 directors on their board are Independent Directors,
and each member possesses knowledge and experience in the fields of
microfinance and/or banking.

❖ Strategies for the future

• Maintain focus on micro lending while expanding further into other retail
and SME lending

Bandhan will aim to maintain their leading position in the micro lending space
while expanding further into other retail and SME lending to capitalise on growth
opportunities in India’s micro lending and banking industries. They seek to
leverage on their existing network and reputation and the scalability of their
business model to benefit from this growth potential by opening new branches
and centres and attracting new members across India. Their network is
particularly strong in East and Northeast India, with West Bengal, Assam and
Bihar together accounting for 56.4% and 57.6% of their branches and DSCs,
respectively. They are continuing to develop a pan-Indian network and
accordingly, they have increased their footprint to 33 State and Union
Territories. In addition to expanding their network, Bandhan will also seek to
grow their business by increasing the digital reach and by leveraging on their
broad network and customer base to improve cross-selling opportunities and
improve their wallet share of customers.

• Boost share of non-interest income

Bandhan will seek to leverage their strong PSL-compliant portfolio by

increasingly selling PSL certificates to non-PSL compliant banks. Additionally, in
2017 they entered into arrangements to begin distributing third-party insurance
products and third-party mutual funds, in return for which they receive a
commission based upon the value of insurance product or mutual fund sold.
They also commenced distribution of life insurance products as a corporate
agent. Bandhan has also commenced inward and outward foreign currency
remittances. The service is made available to non-resident Indians (“NRI”) and
resident Indian customers within defined regulatory guidelines.

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 • Enhance the digital platform to improve customer acquisition and
retention and reduce costs

The proactive adoption and development of digital and technology offerings are
critical to running a competitive bank. Therefore, Bandhan has continually
investing to enhance their digital and technology platform. They have
established internet banking facilities, a mobile banking app, online and mobile
payment modes for cashless payments, e-commerce payments through Verified
by Visa and Rupay Pay Secure, and other online payment and other services.
They are also implementing online investment options allowing customers to
invest in mutual funds and buy shares in initial public offerings, as well as further
online payment systems such as the Unified Payment Interface, the Bharat QR
Code and the Aadhaar Enabled Payment System, in addition to online KYC and
other services.

❖ Key Management Personnel

• Mr. Chandra Shekhar Ghosh is the Managing Director and Chief Executive
Officer of the Bank. He has significant experience in the finance and
microfinance sector. He has been a director on the Board since July 10, 2015.

• Dr. Ashok Kumar Lahiri is the Independent Director (part-time Chairman) of

the Bank. He has significant experience in the banking sector. Previously, he
has worked in the capacity of a Director at Asian Development Bank. He has
also served as the Chief Economic Advisor to the Ministry of Finance, GoI, has
worked as an economist in the International Monetary Fund and has been
involved with the World Bank. He has been a director on the Board since July
10, 2015.

• Sunil Samdani is the Chief Financial Officer of the Bank. He has over 21 years
of experience in the finance sector. Previously, he has worked with, among
others, Development Credit Bank, Karvy Financial Services Limited and
Bandhan Financial Services Private Limited. He has been associated with the
Bank since April 1, 2015.

• Indranil Banerjee is the Company Secretary of our Bank. a. He has over 15

years of experience in the finance sector. He is responsible for the compliance
and secretarial operations of our Bank. He has been associated with our Bank
since April 1, 2015

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 ❖ SWOT Analysis

STRENGTH WEAKNESS

• Focus on Serving Underbanked • Concentration of operations in

and Underpenetrated Markets. East and Northeast India.

• Consistent Track Record of • Concentration of interest income

Growing a Quality Asset and from short term loans
Liability Franchise.

• Extensive, Low Cost Distribution

Network

OPPORTUNITY THREAT

• Penetrate new geographical • Increased levels of nonperforming

markets loans and related provisions

• Increase share of non-interest • Rise of digital platforms and

income payment solutions.

• Threat of fraud and cyber-attacks.

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 ❖ Issue offer and Valuation

Issue Offer

Source: Company, Ventura Research

Shareholding Pattern

Source: Company, Ventura Research

Issue Structure

Source: Company, Ventura Research

At the higher band price of Rs. 375 per share, the company is valued at a P/Bv
multiple of 10.1 times its FY17 Book value.

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 ❖ Financials

Income Statement (` in crore)

Particulars FY15 FY16 FY17

Income Statememt
Interest Income - 1,581.4 3,908.7
Interest Expense - 648.5 1,505.2
Net Interest Income - 932.8 2,403.5
YoY Change (%) 157.7%
Non Interest Income 8.0 149.9 411.4
Total Income 8.0 1,731.3 4,320.1
Total Operating Expenses 5.7 615.9 1,022.0
Pre Provision Profit 2.3 466.8 1,792.9
YoY Change (%) 20195.7% 284.1%
Provision for Expenses 1.7 191.6 681.0
Profit Before Tax 0.6 275.2 1,112.0
YoY Change (%) 48187.7% 304.0%
Taxes - - -
Net Profit 0.6 275.2 1,112.0
YoY Change (%) 48187.7% 304.0%
Source: Company, Ventura Research

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 Balance Sheet (` in crore)

Particulars FY15 FY16 FY17

EQUITY AND LIABILITIES
Shareholder's Funds
Share Capital 501.1 1,095.1 1,095.1
Reserves & Surplus 0.6 2,239.4 3,351.3
Sub-Total 501.6 3,334.5 4,446.5

Deposits - 12,088.8 23,228.7

- Demand Deposits - 234.6 1,452.6
- Savings Deposits - 2,371.1 5,384.7
- Term Deposits - 9,483.2 16,391.3
Borrowings - 3,051.7 1,028.9
Other Liabilties & Provisions 25.3 1,281.6 1,532.0

Total Liabilities 526.9 19,756.5 30,236.1

ASSETS
Cash and balance with Reserve Bank of India 0.0 810.3 6,012.1
Balances with banks and money at call 401.3 2,363.1 1,352.9
Investments - 3,758.0 5,516.5
Advances - 12,437.5 16,839.1
- Cash Credit, Over Draft & Loans repayable - 84.6 344.5
- Term Loans - 12,352.9 16,494.6
Fixed Assets 108.6 236.8 251.8
Capital Work in Progress 0.0 0.5 0.0
Other Assets 17.02 150.29 263.74

Total Assets 526.9 19756.5 30236.1

Source: Company, Ventura Research

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Corporate Office: 8th Floor, ‘B’ Wing, I Think Techno Campus, Pokhran Road No. 02, Off Eastern Express Highway, Thane (West), 400 607
SEBI Registration No.: INH000001634

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