Bandhan Bank Considers Disposing of Its INR 775 Cr Stressed Mortgage Portfolio

Individuals with knowledge of the offers stated that Bandhan Bank's solicitation of bids for its INR 775-crore portfolio of distressed affordable housing loans is likely an indication of the emergence of stress among the lower-income population.

With average principal loans ranging from INR 10 lakhs to INR 12 lakhs, the private lender has provided financing to 8,529 accounts of affordable home purchasers. By December 2, 2023, the bank accepted cash offers, according to sources.

Concerns raised by the Reserve Bank of India (RBI) regarding the expansion of unsecured loans and the subsequent increase in risk weightings for such loans last month are also reflected in Bandhan Bank's sale of a portfolio of affordable housing loans.

A contributing factor to the increase in delinquencies was the provision of small-ticket loans without the lender conducting adequate due diligence. According to Bank of Baroda chief economist Madan Sabnavis, individuals with diminished capacity to repay loans were frequently granted them.

The borrower was unwilling to forego consumption despite not being able to pay, despite the fact that rising inflation was eroding borrowers' income.

The lowest income group is most susceptible to the risks of unemployment and inflation, according to a bank official, and delinquencies in the affordable home loan segment indicate stress at this level.

The transaction portfolio consists of loans from Gruh Finance totaling 16,663 crore that Bandhan Bank acquired. Gruh Finance was bought from HDFC Ltd. by Bandhan Bank in 2019.

The default rate on minor ticket loans below ₹50,000 increased, according to a study published early this month by TransUnion Cibil. The report indicates that between September 2022 and September 2023, the percentage of minor ticket loans delinquent increased from 4.2% to 5.4%.

Small-ticket loans increased in proportion from 3% in June 2019 to 8% in June 2023, according to the report.