Course Instructor: Dr.

Anil Kumar
Academic Task No.: CA2 Academic Task Title: Macroeconomics of Financial Markets
Date of Allotment: 24/08/2019 Date of submission: 30/09/2019
Student’s Roll no: Q1953A06 Student’s Reg. No: 11906130
Evaluation Parameters: (Introduction 5 marks, analysis 5 marks, fact findings 5 marks, conclusion 5 marks)
Learning Outcomes:
It helps to understood about the influence of various macroeconomic indicators on the performance of various
IPOs listed on the stock exchange.
Declaration:
I declare that this Assignment is my individual work. I have not copied it from any other student’s work or
from any other source except where due acknowledgement is made explicitly in the text, nor has any part been
written for me by any other person.

Student’s Sign/Name: Prateek Sehgal

Evaluator’s comments (For Instructor’s use only)

Evaluator’s Signature and Date:
General Observations Suggestions for Improvement Best part of assignment

Marks Obtained: _______________ Max. Marks: ______________

Bandhan Bank Limited
 INTRODUCTION
Bandhan Bank was incorporated on December 23, 2014 at Kolkata, West Bengal, India. It is dealing within
the sector of banking and finance. The firm is allowed to supply its banking services pan India across client
segments once being issued its banking license by run batted in. It offers many money products of plus and
liability for general banking and small banking. Under its plus product, the corporate offers retail loan
consisting a considerable portfolio of small loans, similarly as small, small and medium enterprise (“SME”)
loans and small enterprise loans. Additionally, it provides savings accounts, current accounts and a variety of
fixed deposit accounts under its liability products. The firm conjointly offers different banking product and
services to get non-interest financial gain beneath loan and deposit product. It manages a robust distribution
network that relies in East and Northeast India, with state, state and province along accounting for fifty-
seven.75% and 58.13% of its branches and DSCs, respectively.

 Positive Outlook of the Firm: -

 Adopt Operating Model which focuses to serve in Under-banked and Underpenetrated Markets,
 Strong track record for increasing a quality asset and liability franchise;
 Manages distribution network with low cost and extensive,
 Focuses towards customer-centric approach,
 Consistent financial Performance and robust capital base,
 Strong promoter’s group and management team.

 Summary of Issue: -
Issue Open: - March 15, 2018 – March 19, 2018

Issue Type: - 100% Book Built Issue IPO

Issue Size: - 119,280,494 Equity Shares of Rs 10 aggregating

up to Rs. 4,473.02 Cr.

Face Value: - Rs. 10 Per Equity Share

Issue Price: - Rs. [370-375] Per Equity Share

Market lots: - 40 Shares

Minimum Order Quantity: - 40 Shares

Listing At: - BSE, NSE

 ANALYSIS: -
Company Overview:
India’s largest micro lender, Bandhan Bank is a commercial bank, having commenced operations on 23 Aug
2015, after getting RBI’s in-principle approval for new bank license in April 2014, along with IDFC. Bandhan
Bank’s operations span both general banking (887 bank branches, 430 ATMs serving 21 lakh customers) and
micro lending (2,633 doorstep service centers (DSCs) serving 99 lakh micro loan customers). Geographically,
distribution network is focused in East and North Malay Archipelago, with three states - province, state and
Bihar - along accounting for fifty-seven of branches and DSCs as of 31-12-17. Due to restricted operative
history, not a lot of money info is accessible for comparative purpose

Financial Performance:
For FY17, bank earned interest income of Rs.3,909 crores and other income of Rs. 411 crores,
aggregating to total income of Rs. 4,320 crores. On net interest income (NII) of 2,404 crores, its net
interest margin (NIM) was very strong at 10.4%, as micro loans yielding 18%+ annual returns accounted
for 88% of total lending. Thanks to tight check on prices, its low cost-to-income ratio of 36% is a
competitive advantage, which lead to net profit of Rs. 1,112 crores and an EPS of Rs. 10.15 for FY17.
For 9MFY18, interest financial gain and different financial gain stood at Rs. 3,452 crores and Rs. 503
crores respectively, leading to total income of Rs. 3,955 crores and NII of Rs. 2,169 crores.

As operations expand, margins are slowly but surely under pressure, with NIMs slipping to 9.9%, from
9MFY17’s 10.3%. Moreover, Bandhan’s bad loans, a torment for any lending business, are on an upward
trajectory and especially so, at a rising pace. Gross NPAs which stood at 0.15% on 31-3-16 rose to 0.51%
on 31-3-17 and to as high as 1.67%, as of 31-12-17. Asset quality woes is seconded by sharp jump in
provisions and contingencies to Rs. 265 crores in 9MFY18, from Rs. 88 crores in FY17. Banks’ web
NPAs, as of 31-12-17, stand at 0.8%. It’s been seen that most banks and NBFCs in India have lower
relative presence in the East corridor (both in terms of physical outlets and disbursement) and negligible
presence in North East, which has been Bandhan’s area of expertise. Till now, this differentiator has
come to the bank’s advantage. However, because it expands faraway from its home turf, in addition to
complying with RBI regulation of minimum 25% bank outlets in unbanked rural areas (currently fulfilled
with 29% ratio).

As of 31-12-17, bank’s total deposits stood at Rs.25,294 crores, of which, low-cost current and savings
account (CASA) comprised of 33.2%. On balance sheet size of Rs.33,219 crores, bank had advances of
Rs. 22,931 crores. Its net worth stands at Rs. 5,404 crores, translating into BVPS of Rs. 49.3, as of 31 -
12-17. Fresh issue proceeds of Rs. 3,662 crores will augment bank’s tier 1 capital base and propel
BVPS to about Rs. 80, as of 31-3-18
Shareholding Pattern:
Current equity of Rs. 1,095 crores will expand to Rs. 1,193 crores post IPO. Parent Bandhan Financial
Holdings’ stake of 89.62% will shrink to 82.28% (assuming upper end of the price band) post listing,
which has to ultimately fall to 40% as per regulatory directive. IFC, holding 4.94% direct stake within
the bank, acquired at Rs. 43 per share via primary infusion in Feb 2016, post commenceme nt of the
banking operations, is pruning its holding to 2.72%, making an eye-popping 8x return (or 195% CAGR)
on its 2-year-old investment. The bank’s MD & CEO Mr. Ghosh is additionally creating some handsome
unsuccessful gains, as he bought 14.7 lakh equity shares, representing 0.13% pre-IPO stake, at Rs. 180
per share, just 3 months ago, on 22 Dec 2017, from the parent company. Wonder if there is any justify
cation for 100% hike in IPO price vis-à-vis the last transacted price, although secondary in nature! Other
shareholders embody Singapore sovereign fund’s aroid four.99% holding and SIDBI’s zero.32% holding,
on a pre-IPO basis.

Valuation:
At Rs. 375 per share, Bandhan’s market cap will be Rs.44,730 crores, which leads to one-year forward price-
to book value (PBV) multiple of 4.0x, which is the highest among all Indian listed banks currently. Most
expensive listed bank in India (so far), based on the PBV metric of valuation, is HDFC Bank, ruling at FY19E
PBV of 3.8x, enjoying premium multiples due to its large balance sheet size of Rs. 9.5 lakh crores (against
Bandhan’s Rs. 33,219 crores), high CASA ratio of 45% and low net NPAs of 0.4% (Bandhan’s 0.8%). Another
leading private sector lender Kotak Mahindra Bank, with diversified presence across banking, insurance,
broking, consumer finance, private equity, wealth management, proven track record of over 2 decades, 4 times
the size of Bandhan with market cap of Rs. 2 lakh crores, delivering consistent growth rates in high twenties
for the past few years, and a comparable asset quality (net NPAs of 0.9%) is trading at one-year forward PBV
multiple of 3.6x. Both these banks build Bandhan’s IPO valuation seem stretched.

Although not an apple-to-apple comparison, if one were to draw parallels with another micro finance
institution (MFI) which transitioned into a bank in Feb 2017, albeit a small finance bank, Ujjivan monetary
Services with smaller size (gross loan book of Rs. 7,100 crores) clocked higher NIM vis-à-vis Bandhan, of
11.79% in Q3FY18, due to 95% of its gross loan book comprising of micro loans. Although its portability
took a hit for the past few quarters post transition to a bank, Q3FY18 was its turnaround quarter and its current
PBV multiple of 2.1x, based on FY19E, makes Bandhan’s IPO pricing over extended. To summarize, while
Bandhan’s transition from a NBFC to bank has been smoother than peers, advantage of high NIMs is not
unique. Its banking model is also differentiated, however gift benefits of low value of operations and
exceptionally high NIMs don't seem to be property, once it penetrates deeper in SME disposition and in its
non-home geographies
 Fact Finding: -

Bandhan Bank to launch Rs 4,473 crore IPO on 15 March; 10 facts about India’s
biggest banking public issue
The Kolkata-based personal sector investor Bandhan Bank has finalized the value band for the much-awaited
commercialism and can begin the initial share sale from next week. Bandhan Bank will launch India’s biggest
IPO (initial public offering) ever by a local bank raising up to Rs 4,473 crore on 15 March 2018.
The Kolkata-based private sector lender Bandhan Bank has finalized the price band for the much-awaited IPO
and will begin the initial share sale from next week. Bandhan Bank will launch India’s biggest IPO (initial
public offering) ever by a local bank raising up to Rs 4,473 crore on 15 March 2018. Earlier last month,
Bandhan Bank got the SEBI approval for the commercialism once 2 months of filing the DRHP. In the biggest
banking commercialism, Bandhan Bank and its shareholders will be selling up to 11.93 crore shares of face
value Rs 10 which is 10% of the post-issue share capital of the bank. Bandhan Bank got a bank license from
the Federal Reserve Bank of Asian nation in 2014, being the primary microfinance entity to receive a bank
license.

Here are 10 facts about India’s biggest banking public issue:

1.For the biggest banking IPO by a local bank, Bandhan Bank has set a price band of Rs 370 to Rs 375 of face
value Rs 10 per equity share.
2.Out of the total issue size of 11.93 crore shares, Bandhan Bank is issuing fresh equity shares to the tune of
9.7 crore shares and an offer for sale of around 2.16 crore shares.
3.At the upper end of the price band, Bandhan Bank has expected to raise up to Rs 4,473.75 crore from the
IPO while the selling shareholders, International Finance Corp, part of the globe Bank cluster, and IFC FIG,
have expected to garner up to Rs 810 crore (inclusive of total amount).
4.From the fresh issue of 9.77 crore equity shares, Bandhan Bank will raise up to Rs 3,663.75 crore.
5.The floor price is 37 times and the cap price is 37.5 times the face value of the equity share. Bids may be
created for a minimum of forty equity shares and in multiples of forty equity shares thenceforth.
6.The Price/Earnings ratio based on the basic EPS for the financial year 2017 at the upper end of the price
band is 36.95 as against the industry average peer group P/E of 35.36.
7.The promoters of Bandhan Bank are Bandhan Financial Holdings Ltd, Bandhan Financial Services Ltd,
Financial Inclusion Trust and North East Financial Inclusion Trust.
8.The average cost of acquisition of equity shares for IFC and IFC FIG, the selling shareholders in the public
offer is Rs 42.93 and Rs 41.77 respectively.
9.The biggest banking IPO of Bandhan Bank will remain open for three days for subscription from 15 March
2018 to 19 March 2018.
10.The shares of Bandhan Bank are proposed to be listed on both NSE and BSE.
The Kolkata-based money services entity turned personal sector loaner Bandhan Bank had paved the manner
for share sale manner back in 2017 following that the bank filed DRHP (draft red herring prospectus) with
SEBI (Securities and Exchange Board of India) on 1 January 2018. Bandhan Bank had appointed five
merchant bankers for its IPO, namely, Goldman Sachs (India) Securities Pvt Ltd, Kotak Mahindra Capital
Company Ltd, Axis Capital Ltd, JM Financial Institutional Securities and JP Morgan India personal Ltd
whereas Karvy Computershare personal Ltd is that the registrar to the problem. Bandhan Bank commenced
its operations as a banking entity on twenty three August 2015 with 501 branches across twenty-four states
when it remodeled from microfinance entity to a universal bank.

Company Promoters:
The Promoters of the Bank are BFHL, BFSL, FIT and NEFIT.

1. Bandhan Financial Services Private Limited (BFSL) is a non-banking financial institution for purposes
of carrying out non-banking financial activities without accepting public deposits.

2. BFSL was accorded in-principle approval by the RBI on April 9, 2014 for setting up a bank in the private
sector. The promoter of BFHL is BFSL.

3. FIT is an irrevocable charitable trust with objectives including inter alia eliminating functional illiteracy
in India by making education economically relevant.

4. NEFIT is an irrevocable charitable trust with objectives including inter alia eliminating illiteracy in India
by making education available to the underprivileged.

Company Financials:

Particulars For the year/period ended (in Rs. million)

31-Mar-17 31-Mar-16 31-Mar-15

Total Assets 302,360.90 197,565.00 5,268.88

Total Revenue 43,201.23 17,312.54 79.53

Profit After Tax 11,119.52 2,752.47 5.76

Bandhan Bank IPO Tentative Date / Timetable
Bid/Offer Opens On Mar 15, 2018

Bid/Offer Closes On Mar 19, 2018

Finalization of Basis of Allotment Mar 22, 2018

Initiation of Refunds Mar 23, 2018

Credit of Shares to Demat Acct Mar 26, 2018

IPO Shares Listing Date Mar 27, 2018

Bandhan Bank IPO Lot Size and Price (Retail)

Application Lots Shares Amount (Cut-off)

Minimum 1 40 ₹15,000

Maximum 13 520 ₹195,000

Listing Day Trading Information

. BSE NSE

Issue Price ₹375.00 ₹375.00

Open ₹485.00 ₹499.00

Low ₹455.00 ₹455.00

High ₹498.40 ₹499.00

Last Trade ₹477.20 ₹476.85

Volume 13,907,287 91,036,634

Risk Factors / Reasons not to invest in a Bandhan Bank IPO

1) Banking Stocks became high risk when PNB fraud of Rs 11,500 Crores.
2) tally has asked banks in Asian nation to return their high price loans of over Rs fifty Crores at intervals
fifteen days (mid of March, 2018). If any of Indian banks are developing with a listing of upper dangerous
loans, this can impact the banking sector for some time.
3) Their restricted in operation history and their quick growing and apace evolving business create it tough to
engaged.
4) Their business and future in operation results on the premise of their past performance, and their future
results may not meet or exceed their past performance.
5) They cannot effectively compare their money statements for business enterprise Years 2015, 2016 and 2017
due to irregular terms of duration.
6) If they're unable to manage growth} related to the expansion of their branches, ATMs and DSCs effectively,
their financial, accounting, administrative and technology infrastructure, as well as their business and
reputation could be adversely affected.
7) A considerable portion of their operations are set in East and Northeast Asian nation, making us vulnerable
to risks associated with having geographically concentrated operations.
8) Their business includes each ancient general banking activities and fashionable small banking activities
that exposes their business overall to the risks faced by every sector, which may negatively impact their
performance.
9) They derive a substantial portion of their interest income from loans that are due within one year, and a
significant reduction in these short-term loans may result in a corresponding decrease in their interest income.
10) Microcredit disposal has its own distinctive risks and, as a result, they may experience increased levels of
nonperforming loans and related provisions and write-offs that negatively impact their results of operations.
11) They believe totally on deposits as a inexpensive means that of funding their loan portfolio and there's no
guarantee that they'll be ready to supply sufficient deposits or alternative funding to support their business.
12) An increase in their portfolio of non-performing assets may materially and adversely affect their business
and results of operations their business is vulnerable to interest rate and investment-related risks. Volatility in
interest rates, price of investments and alternative market conditions might adversely have an effect on their
web interest margin, the worth of their fastened financial gain portfolio, their financial gain from treasury
operations, the standard of their loan portfolio and their money performance.
13) They face the threat of fraud and cyber-attacks targeted at disrupting their services, such as hacking,
phishing and Trojans, and/or theft of sensitive internal data or customer information. This may cause harm to
their name and adversely impact their business and money results. Their business and money results can be
wedged materially by adverse results of legal proceedings.
14) Other risk factors (Internal and external) can be viewed in the red hearing prospectus (RHP)
.
 CONCLUSION
Bandhan is the first microfinance institution of its type which transform itself into a universal bank. Bandhan
transform itself successfully from non-government organization to non-banking financial company and from
non-banking financial company to a bank to achieve its vision and mission of financial inclusion of
disadvantageous section of the society. It can be concluded from the above study that it became successful to
fill the gap which it finds between a bank and microfinance institution. This study represents that Bandhan
bank extended its operation after the transformation into bank. The study analyses the financial performance
of the bank by using various ratios. Return on equity and return on assets ratios are analyses to check the
overall financial position of the bank. Growing pattern of profit after tax and net interest income was studied
to check the ability to generate the revenue. Capital adequacy ratios and cost to income ratios are studied to
know the financial strength of the bank. By this study it can be concluded that overall financial performance
of the Bandhan bank is good and shows a growing trend in almost all aspects. This is need to put a serious
attention towards the increasing NPAs of the bank because it can be hurdle for the growth of the bank.

Since Bandhan is yet to establish a track record and prove its ability to diversify as scale of operations enlarge,
one must wait for an attractive price point. Meanwhile, due to the market meltdown, more established and
larger banks are available at much attractive valuation, Hence, citing expensive valuation and declining sheen
of BFSI sector is in secondary market. One is advised to skip the IPO for now and review the stock post listing.