Bank loans

Capital Calls: Small is less attractive in Indian bank loans

A man displays 500 Indian rupee banknotes, in Ajmer, India November 24, 2016.

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MUMBAI, May 10 (Reuters Breakingviews) – Concise information on global finance.

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MICRO-MADNESS. Earnings from Kolkata-based Bandhan Bank (BANH.NS) are a stark reminder of how volatile extending credit to the underserved can be. The fast-growing micro-lender has grown into a full-fledged bank reported a massive 80% drop in net profit for the March quarter compared to the same period last year. Its gross non-performing loans reached a stunning 6.8% – and that was after a big provision of just under 16 billion rupees ($217 million), a jump of 93%.

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Adding to the pandemic pain, Bandhan has been hurt by Assam politicians vowing to forego micro-loans; the northeastern state accounts for 12% of its microloan portfolio, which in turn accounts for about two-thirds of its loan portfolio. The $6.5 billion bank now trades at around 2x its book value, half the ratio at which it went public nearly three years ago, reflecting a roughly proportional decline in its return on equity equity while its bad debt ratio quadrupled. Bandhan is unlikely to reverse this for long after Covid-19 subsides. (By Una Galani)

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