Bandhan Bank Ltd

As Bandhan Bank embarks on a new era of growth, a strong leadership team is critical for steering the next phase of this journey. In FY 22-23, the Bank announced the appointment of Ratan Kumar Kesh as the Chief Operating Officer. The Board was delighted to welcome Rajinder Kumar Babbar, Chief Business Officer, in the year in review.

Dear Shareholders,

It is my immense privilege to present Bandhan Bank's Annual Report for the year ended March 31, 2024. Throughout the year, the Board has focussed on ensuring your Bank's progress towards long-term strategic goals, including portfolio and geographical diversification, while building new capabilities to unlock further value-generating opportunities. Today, with a presence in 35 states and union territories in India, nearly 6,300 banking outlets, and a loyal customer base of over 3.35 crore, your Bank is successfully executing its strategy and progressing on the path to becoming a stronger universal bank. Moreover, your Bank continues to have a positive and significant impact on its customers and the wider communities, reiterating its steadfast commitment to inclusive banking in line with your Bank's philosophy of Aapka Bhala, Sabki Bhalai.

Against the backdrop of global uncertainty, India continues to be an outlier in terms of GDP growth. In FY 23-24, the economy grew by a robust 8.2%, driven primarily by strong growth in investments, manufacturing, and government spending. The growth in investments is particularly significant for the revival of the capital expenditure cycle, which supports long-term economic growth. Despite the challenges,

Bandhan Bank has shown remarkable resilience and is well-positioned to navigate these uncertain times.

However, since mid-2022, investments and GDP growth have recovered much faster than consumption. This divergence is significant, as household consumption accounts for approximately 60% of nominal GDP. One of the primary reasons for muted household consumption has been the lagged impact of the pandemic across consumer segments, exacerbated by subsequent global uncertainties. However, it is heartening to witness that, of late, high-frequency indicators have started improving, including for the rural economy.

After a challenging fiscal deficit of 9.2% of GDP in FY 20-21 due to COVID-related expenditures, India's fiscal landscape has shown remarkable resilience, with the deficit narrowing to 5.6% of GDP by FY 23-24, and is likely to be 4.9% in FY 24-25. India has also largely managed to steer its inflation trajectory well, with retail inflation staying within the Reserve Bank of India's 2-6% target range since a spike in mid-2023, and the policy repo rate has remained unchanged at 6.5% since February 2023. Among other indicators of robust economic performance, the total gross GST collection during FY 23-24 surpassed the Rs.20 lakh crore milestone, registering an 11.7% increase compared to the previous year.

One of the major drivers behind India's resilient growth narrative is the digitalisation of the economy. Initiatives like Aadhaar, Unified Payments Interface (UPI), and widespread Internet penetration have helped formalise the economy and drive financial inclusion. Key initiatives such as the PM Jan Dhan Yojana, which has notably increased the percentage of women with bank accounts, along with the Skill India Mission, Start-Up India, and Stand-Up India, have also significantly impacted the socioeconomic landscape.

The pressures on asset quality from the previous credit cycle are subsiding, creating a favourable business environment and bolstering the banking sector's growth potential. Bank loans grew by 16.3% in FY 23-24, compared to 15% in the previous year. This growth figure excludes the impact of a major bank merger. The demand for credit in the past year was driven by a wide variety of sectors, such as agriculture and allied activities, industry, and services.

The lending patterns of banks witnessed some changes during the year. Lending to large companies recovered, with credit to industry growing by 8.5% compared to 5.6% in the previous year. However, the growth of personal loans moderated as unsecured loans slowed to 20.8% compared with 26.7% in the previous year. This lower growth rate followed the Reserve Bank of India's decision to increase risk weights for unsecured consumer loans and credit cards. While these measures have led to higher capital costs for institutions and impeded the growth of such loans, they will ultimately create a more robust and transparent financial system.

Additionally, for the first time, the combined net profit of listed public and private sector banks exceeded Rs.3.1 lakh crore, a 39% increase from Rs.2.2 lakh crore in the previous year. Meanwhile, the GNPA ratio of scheduled commercial banks continued its downward trend, reducing to a 12-year low of 2.8% by the end of FY 23-24, from 3.9% a year earlier. This underscores the improvement in asset quality and the overall health of the banking sector.

Your Bank delivered a stable performance in FY 23-24, with deposits, gross advances, and net interest income recording good growth. While Profit after Tax (PAT) registered a relatively subdued growth during the year, it was due to technical write-offs and increased provisions made as a prudent measure. These technical write-offs primarily pertain to loans within the Emerging Entrepreneurs Business portfolio, which faced headwinds during the pandemic and have a long vintage. On an underlying basis, adjusting for these one-offs would make PAT growth considerably higher.

The capital adequacy ratio reflects a well-capitalised balance sheet, ensuring financial stability and resilience.

One of the major highlights of the year was the successful transition to a new Core Banking System (CBS), aligning with the Bank's near-term vision of transforming its IT capabilities. The Bank is also building a robust surround system to create a tech stack that will align well with the Bank's focus on deposit-led assets growth, as also deepening the relationship with customers with focus on cross-sell initiatives leveraging data and analytics.

Further strengthening portfolio quality remains a critical focus for the Bank. In line with this objective, the Bank plans to invest in dedicated credit and collections verticals, leverage data analytics and technology, and use early warning systems. Additionally, the Bank will continue to improve its portfolio quality by leveraging customer relationships.

The Bank also aims to grow its asset book by improving the portfolio mix, with a greater emphasis on secured assets.

As Bandhan Bank embarks on a new era of growth, a strong leadership team is critical for steering the next phase of this journey. In FY 22-23, the Bank announced the appointment of Ratan Kumar Kesh as the Chief Operating Officer. The Board was delighted to welcome Rajinder Kumar Babbar, Chief Business Officer, in the year in review. The Bank also appointed Rajeev Mantri as the new Chief Financial Officer. The core management team was further strengthened with the appointment of Gopalkrishnan Santosh, Head - Mortgages and Consumer Lending, and Satish Kumar - Head - Wholesale Banking. With this evolved leadership team bringing a wealth of experience and domain knowledge, the Bank is now on a stronger footing to drive its future strategic direction.

In April 2024, Chandra Shekhar Ghosh, Managing Director & Chief Executive Officer, announced his decision to retire upon the completion of his tenure on July 9, 2024. His contribution as the founder of Bandhan Bank is immeasurable, having grown the organisation from a microfinance institution to a universal bank employing over 75,000 people and remaining steadfastly committed to financial inclusion. On behalf of the Board, management, and all the employees of the Bank, we extend our deepest thanks and appreciation to him for his exceptional leadership over the years.

His passion and expertise have built Bandhan Bank into an organisation deeply rooted in values and one that truly brings transformational impact on the lives of many. We wish him the best for his future endeavours.

In line with the Bank's Business Continuity Plan and Succession Plan, the Board has appointed a search firm to identify potential candidates for the role of Managing Director & Chief Executive Officer. In the interim, Ratan Kumar Kesh has assumed the responsibility of the MD & CEO.

Despite various global uncertainties, India's macroeconomic parameters remain strong. The RBI projects GDP growth of 7.2% and CPI inflation of 4.5% for FY 24-25. Subsiding inflationary pressures, combined with the realisation of a likely normal monsoon, may open up the possibility of rate cuts by the RBI in the second half of FY 24-25. A normal monsoon is also expected to revive rural demand, leading to an increase in private consumption growth. Economic growth is further expected to be driven by a rise in private corporate investments.

Against this favourable backdrop, the Indian banking sector is well-positioned to sustain its growth momentum. While the anticipation of an RBI rate cut may result in some margin adjustments due to the possible re-pricing of advances, it also presents opportunities for more affordable borrowing. Although loan growth might experience moderation if deposit growth does not accelerate, the sector remains resilient. Additionally, by proactively addressing risks related to geopolitical tensions, fluctuating crude oil prices, and weather variations affecting agricultural output, the sector can continue to contribute positively to economic growth projections across various segments.

Looking forward, your Bank is well- positioned to benefit from the unfolding economic growth due to its trusted customer relationships, extensive geographic reach, excellent product portfolio, digital transformation, strengthened leadership, and enduring commitments to financial inclusion, community impact, and business sustainability. The focus remains on providing accessible, simple, cost-effective, and innovative financial solutions to support the growth aspirations of our customers and India. In this journey, we thank you for your continued trust and belief in Bandhan Bank.

Warm regards,

Non-Executive (Independent) Chairman