Bandhan Bank has completed a major portfolio cleanup by offloading bad loans worth ₹6,872.36 crore to asset reconstruction companies for a total consideration of ₹901.72 crore, according to an exchange filing on Monday. The strategic move involves disposing of non-performing assets (NPAs) and written-off loan portfolios from the bank's Emerging Entrepreneurs Business segment.

NPA Portfolio Sale to ARCIL

The bank sold its unsecured NPA portfolio with principal outstanding of ₹3,165.25 crore to Asset Reconstruction Company (India) Ltd. (ARCIL) for ₹569.75 crore. ARCIL emerged as the winning bidder under the Swiss Challenge Method, with the transaction structured on Security Receipts basis.

The security receipts subscription was divided between ARCIL taking 53.25% amounting to ₹303.39 crore, while Bandhan Bank retained 46.75% worth ₹266.36 crore.

Written-Off Loan Portfolio Transaction

In a separate transaction, Bandhan Bank offloaded its unsecured written-off loan portfolio valued at ₹3,707.11 crore to Phoenix ARC Pvt. for ₹331.97 crore. Phoenix ARC secured the deal as the highest bidder through an auction process.

Phoenix ARC subscribed to 37.84% of security receipts amounting to ₹125.60 crore, while Bandhan Bank retained 62.16% of SRs worth ₹206.37 crore.

Portfolio Composition and Business Impact

The disposed portfolios belonged to Bandhan Bank's Emerging Entrepreneurs Business segment and included:

• Group loans
• Small business loans
• Agricultural loans
• Aspiring business groups financing

Both portfolios consisted entirely of unsecured lending products, representing the bank's strategic focus on cleaning up its balance sheet by transferring problematic assets to specialized reconstruction companies.

Market Performance

Shares of Bandhan Bank closed 0.67% higher at ₹146.05 on the National Stock Exchange on Monday, outperforming the benchmark Nifty which declined 0.38%. However, the stock has fallen 8.18% on a year-to-date basis, reflecting broader market challenges.

Analyst sentiment remains mixed with 11 out of 28 analysts maintaining 'buy' ratings, 11 recommending 'hold', and six suggesting 'sell' according to Bloomberg data. The average 12-month price target implies a potential upside of 20.70% from current levels.

Bandhan Bank has successfully completed its major asset cleanup initiative by selling non-performing assets (NPAs) and written-off portfolios worth Rs 6,872.36 crore to Asset Reconstruction Companies (ARCs) for a total consideration of Rs 901.72 crore. The transaction, which was approved by the bank's board in November, represents a significant milestone in the bank's efforts to strengthen its balance sheet and improve asset quality.

Transaction Details

The asset sale was executed through two separate transactions with different ARCs, following the bank's strategic approach to portfolio diversification:

NPA Portfolio Sale to ARCIL

The bank successfully sold its unsecured NPA portfolio with more than 180 Days Past Due to Asset Reconstruction Companies (India) Limited (ARCIL) through the Swiss Challenge Method. The transaction details include:

Written-off Portfolio Sale to Phoenix ARC

The second component involved the sale of the bank's unsecured written-off loan portfolio to Phoenix ARC Private Limited through an auction process:

Strategic Impact on Financial Position

The completion of this asset sale marks a crucial step in Bandhan Bank's balance sheet optimization strategy. The transaction encompasses assets from the bank's Emerging Entrepreneurs Business (EEB), including group loans and small business agri loans, as well as the Aspiring Business Group (ABG).

The bank's retention of significant portions of Security Receipts in both transactions demonstrates its continued interest in potential recoveries while transferring the primary collection responsibility to specialized ARCs. This approach allows the bank to clean up its books while maintaining upside potential from future recoveries.

Regulatory Compliance and Market Impact

This transaction aligns with regulatory expectations for banks to actively manage their non-performing assets and maintain healthy asset quality ratios. The successful completion of the sale process, involving both Swiss Challenge and auction methods, showcases the bank's systematic approach to asset resolution.

The move is expected to positively impact the bank's key financial metrics, including gross NPA ratios and return on assets, while freeing up capital for productive lending activities. Market observers will closely monitor the bank's upcoming quarterly results to assess the full impact of this strategic initiative on its financial performance.