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 completed a major asset restructuring transaction by selling ₹3,212 crore worth of bad microfinance loans to Asset Reconstruction Company (India) Limited (ARCIL). This significant transaction marks an important step in the bank's ongoing efforts to manage its asset quality and strengthen its balance sheet.

Transaction Details

The sale involves non-performing microfinance loans valued at ₹3,212 crore that have been transferred to ARCIL. This transaction allows Bandhan Bank to remove these stressed assets from its books and focus on its core banking operations.

Strategic Impact

The disposal of these non-performing assets represents a strategic move by Bandhan Bank to clean up its loan portfolio. By transferring these bad loans to ARCIL, the bank can reduce its non-performing asset ratio and improve its overall asset quality metrics.

This transaction is particularly significant given Bandhan Bank's focus on microfinance and financial inclusion. The sale allows the bank to maintain its commitment to serving underbanked segments while managing the inherent risks associated with microfinance lending.

Asset Reconstruction Process

ARCIL, as the acquiring entity, specializes in the reconstruction and recovery of stressed assets. The company will now handle the recovery process for these microfinance loans, utilizing its expertise in asset reconstruction and recovery mechanisms.

The transaction enables Bandhan Bank to realize value from these stressed assets while transferring the recovery responsibility to a specialized asset reconstruction company. This approach allows the bank to focus its resources on new business generation and customer service rather than prolonged recovery efforts.

This sale of bad microfinance loans is part of Bandhan Bank's asset quality management strategy, demonstrating the bank's proactive approach to addressing non-performing assets and maintaining a healthy balance sheet.