Loan Recovery Remains Challenging In Parts Of Maharashtra: Bharat Financial

Bharat Financial Inclusion Ltd. gave up on most of its early-morning losses as investors took heart from the company's statement that it was evaluating various strategic options including bringing in a strategic investor and looking at acquisitions to ramp up operations. The microfinance company posted a loss in the January-March quarter of the financial year 2016-17.

Higher credit costs coupled with a higher than mandated provisioning led to a loss of Rs 235 crore, Chief Financial Officer Ashish Damani told BloombergQuint in a phone conversation, adding that the situation in Maharashtra is particularly patchy.

Also Read: Merger Looms As High Provisions Turn Bharat Financial Unprofitable

Provisioning Dents Profit

Provisioning and write-offs rose more than 90 times to Rs 334 crore in the January-March quarter, as the company continued to feel the lagged impact of demonetisation. Damani however, said the lender has provided for more than the amount mandated by the Reserve Bank of India (RBI). The company provides for any loan that remain unpaid for more 60 days, compared to the banking regulator's rule of starting to provide for it only after 90 days, he dded. The company also makes provisions on the total outstanding loan amount and not only on the amount due, as mandated by the RBI.

The problem area, according to Damani, is Maharashtra. “We are still seeing recovery but they are not as sharper or good as what we have seen in Uttar Pradesh (UP)…Maharashtra is yet to turnaround in the same manner as UP”, he said.

FY18 Guidance

The good news, Damani said, is that disbursements have picked up sharply and are back to pre-demonetisation levels. The company reiterated its guidance of 50 earnings percent growth in the current financial year to Rs 435 crore. It reported a net profit of Rs 290 crore in the financial year 2016-17. The company targets a loan portfolio growth of 47.5 percent to Rs 13,500 crore outside Andhra Pradesh.

Progress On Digital Initiatives

The company has activated cashless disbursements in all branches across the country and its share rose to 75 percent in April, said Damani. The microfinance lender has also rolled out a pilot project, called the retail distribution and service point (RDSP) initiative, connecting 2 lakh kirana stores with bank accounts.

On The Prowl

“You need savings accounts for the customer to do digital transactions, and that brings in our requirement for strategic alliance. Which are the formats in which it can be done, that we still have to evaluate” said Damani when asked about the board's decision to give the chief executive officer and managing director a free hand to explore all options including getting in a strategic investor and a possible acquisition.

IndusInd Bank Ltd. has confirmed that it was in talks with Bharat Financial, and other entities, for a possible merger.

Analyst's Take

The sudden spike in provisioning has not come as a negative surprise, said Subramanian Iyer, analyst at Morgan Stanley, in his report dated May 2. His concern though is the weak profit guidance for the current financial year. “At Rs 435 crore, FY18 profit guidance is 35 percent below Bloomberg consensus, 40 percent below MS (Morgan Stanley) estimates”. Any announcement on the strategic front could provide some support to the stock despite the weak numbers, he wrote. He has retained his rating on the stock at overweight with a price target of Rs 915.

Shares of Bharat Financial Inclusion ended the day over 2 percent lower at just above Rs 780 on Tuesday.