Crisil Downgrades Bandhan Bank's Non-Convertible Debentures' Rating

Crisil ratings Ltd. has downgraded its rating on non-convertible debentures of Bandhan Bank Ltd. to 'AA-/Stable’ from ‘AA/Negative’

The rating agency also reaffirmed 'A1+’ rating on the certificate of deposits of Bandhan Bank.

It is taking longer than anticipated to bring down Non Performing Assets at the bank and increase profitability to pre-covid levels, Crisil Ratings said in a statement.

Despite momentary correction in fourth quarter of fiscal 2023, the bank’s asset quality metrics have remained volatile since the pandemic outbreak, thereby constraining its overall profitability, it added.

Amidst "legacy" asset quality issues pertaining to pre-Covid-19 portfolio and "slow restoration" in ground level credit discipline in the core territory, the bank’s ability to revise its growth strategy and business model to tap the market potential remains critical.

"While the bank is endeavoring to diversify its presence into non-eastern parts of the country through its retail secured asset portfolio – its ability to replicate the growth trajectory for the non-microfinance (non-Emerging Entrepreneurs Business vertical) portfolio across the country will remain crucial", it said.

The bank’s portfolio remains regionally concentrated and susceptible to local socio-political risks inherent in the micro loan business given the modest credit risk profile of borrowers.

"Nonetheless, the ratings remain driven by the bank’s established track record in the micro-loan segment and potential benefits accruing from gradual diversification across secured asset classes, robust capitalisation, and healthy deposit franchise", Crisil said.

Crisil Ratings believes Bandhan Bank will continue to maintain its established market position in micro- loan segment, strong capitalization and healthy resource profile over the medium term.

Upward Factors

• Significant and sustained improvement in asset quality reflected in total stressed assets (GNPAs + restructured portfolio) reducing significantly to, and remaining below, 3% on a steady state basis.

• Revival in overall profitability evidenced by RoA improving back to and remaining above 3% on a steady state basis

 Downward Factors

• Prolonged stress in asset quality constraining the overall profitability of the bank

• Deterioration in overall profitability resulting in a loss and/or tier I capital adequacy ratio declining to below 15%.