bandhan bank ltd Management discussions

A. Global and Indian Economic Scenario

1. Global economy - Headwinds persist

The recovery in global growth post pandemic lagged expectations. This has majorly been a consequence of both exogenous shocks as well as lack of swift reversal of key macro-economic and logistic pressure points. Three major drivers shaping global finance are: (a) geopolitical uncertainty and high inflation; (b) multi-year high interest rates; and (c) rapidly evolving technology and innovation.

Inflation in advanced economies rose to multi-decade highs:

Global financial system was flushed with liquidity while policy rates for most economies trended lower during the pandemic years. Easing of supply-chain bottlenecks, on the other hand, was tepid, especially given the severe geopolitical headwinds since the break out of the Russia-Ukraine war in February 2022. Consequently, inflation hit multidecade highs in 2022 for several major economies.

Tightening of global policy rates to tame inflation:

Given this challenging macro backdrop, central banks across economies have responded with sharp and often synchronised hikes in policy rates. The idea was to deter demand by rapidly raising the cost of credit, to convey the policy commitment to combat inflation in unequivocal terms, and thereby contain prices and anchor inflation expectations. For instance, US Fed increased the Fed Funds Rate (FFR) cumulatively by 5 percentage points (from near zero rates) over just one year. This is the fastest rate hiking cycle since the 1980s.

However, the rapid tightening of policy rates and withdrawal of excess liquidity by large central banks created growth uncertainties and also resulted in exposing fragile segments of the financial sector in some of the advanced economies. Stretched balance sheets of some banks on the back of the rate hiking cycle along with questionable risk management practices, led to the downfall of some financial institutions in US and Euro Area. While the banking crisis seems to have been abated with timely government interventions since then, policymakers clearly remain extra-vigilant against any fresh manifestation or spill-over of such risks.

Amid all the uncertainty in global macro-economic setup, innovation in business and services has been growing at a brisk pace. Innovation in artificial intelligence (AI), decentralised applications in fintech and widespread use of digitisation are expected to change the business (and potentially the world) order much faster than anticipated.

Significant impact of digital technology on financial services:

Fintech, the application of digital technology to financial services, is reshaping the future of finance. Digital

technologies are revolutionizing payments, lending, investment, insurance, and other financial products and services - a process that the COVID-19 pandemic has accelerated. These technological advancements are challenging the pillars of traditional finance, whereby coverage and quality of financial products across both advanced and emerging economies are expected to scale up in the next few years.

Data is being leveraged to answer key questions regarding - customer base, product development, product management, target customers, financial innovation and inclusion. These advancements in technologies and data management will continue to blur the boundaries of both financial firms and the financial sector. The pace of innovations is only going to garner pace and, policymakers are adjusting swiftly to maximise utility.

Policymakers are currently faced with a unique cocktail of uncertain global growth outlook, expectation of slowdown in inflation amid record high interest rates while technological advancements in finance continue to challenge the status quo in traditional finance.

Global growth to remain somewhat soft:

Tightening monetary conditions due to high policy rates and banking turmoil, along with lingering geopolitical uncertainty expected to slow down global growth.

Commodity price cycle along with growth in key economies like China remains crucial for global growth and inflation outlook. Impact on productivity, jobs and wages would start to get pronounced in the next few years as automation and digitisation impact major business and service sectors.

2. Indian Economy

India - A bright spot despite global headwinds

IMF has described India as a bright light at a time when the world is facing imminent pronounced risks. Moderation in inflation means that bulk of the policy rate hike is behind for India while advance economies continue to raise rates.

Rapid digital innovation along with buoyant domestic demand is expected to cushion India from adverse external impacts (global growth slowdown).

The Indian economy has moved on post its encounter with the pandemic, staging a strong recovery ahead of many nations and positioning itself to ascend to the pre-pandemic growth path in FY 2022-23. The Indian growth story has been underpinned by strong investment activity bolstered by a strong push in government- capex along with buoyant private consumption.

Even though weak external demand and high inflation have tempered growth expectations, Indian economy continued exhibiting resilience as national output grew over 7 per cent. during FY 2022-23 [as estimated by Indias National Statistics Office (NSO)]. The underlying growth dynamics of the Indian economy, during the year, are enumerated below:

India growth dynamics: Service sector expected to remain robust while growth in investment, consumption and agriculture set to pick up in FY 2023-24

a. Service sector continues to remain robust:

Indias services sector staged a strong rebound since COVID, driven by pent-up demand for contact intensive activities such as tourism, retail trade, hotel, entertainment and recreation which took the biggest hit from the pandemic. S&P Globals India Services Purchasing Managers Index (PMI), a leading indicator of services growth, rose to 62 in April 2023 from 57.8 in March 2023, signalling the fastest expansion in output since mid-2010.

Consistent surge in Indias services exports, which hit a record high of USD 333 billion during FY 2022-23¹, has provided a boost to Indias balance of trade. Service exports are no longer being driven by IT services alone but also by more lucrative offerings such as consulting and research & development.

b. Manufacturing sector growth was tepid in FY 2022-23:

Manufacturing sector registered soft single digit growth during FY 2022-23 as against a growth of 11.1 per cent. during the previous year. This softness was primarily due to two factors i.e. high raw material prices and weak external demand.

c. Recovery in domestic consumption underway:

Private Final Consumption Expenditure (PFCE) recorded robust growth of over 7 per cent. during FY 2022-23. The recovery in rural consumption post the pandemic has been quite pronounced while urban consumption has remained steady.

i. Rural consumption expected to trod the recovery path, overcoming the twin shock of lockdown and rising input costs:-

o Agriculture sector remains steady: According to National Statistics Office (NSO), agriculture, forestry and fishing recorded a growth of 4 per cent. during FY 2022-23, compared to 3.5 per cent. during the last fiscal. Total food- grain production in India is estimated at a record 330 million tonnes² in FY 2022-23, an increase of nearly 5 per cent. compared to the previous year.

o After months of slackening, rural wage growth has shown a rebound, accompanied by falling inflation. Rural wages rose by 7 per cent. for agricultural workers in FY 2022-23³. For non-agricultural workers, wages have risen by more than 5 per cent. for the consecutive past six months³ (October 2022 - March 2023).

o Barring adverse climatic scenarios, a good Rabi harvest would keep the sector in an upward direction for prolonged time during FY 2023-24.

ii. Urban consumption ended FY 2022-23 at over three-year high-

o Increased domestic passenger vehicle sales, GST e-way bills, cargo traffic and credit card transactions signal improving urban demand.

o A bit of demand slowdown is expected in FY 2023-24 as the cumulative effect of rate hikes by the central bank sets in.

d. Domestic investment sentiment remains upbeat:

Central Government has continued to support investment activity with capital expenditure outlay reaching ?5.7 lakh crore in FY 2022-23, which is nearly 30 per cent. higher on year-on-year basis. Gross Capital Formation (GCF) increased by 9.6 per cent. year-on-year during FY 2022-23. Private investment exhibited encouraging signs during FY 2022-23, partially driven by the crowding-in effect by public capex, robust credit flow along with strengthening of the balance sheets of the corporates. To put this into context, new projects worth ?11.9 trillion were announced in Q4 FY 2022-23⁴. This represents a 23 per cent. rise over the previous year.

Indias growth story has been ably aided by a healthy and robust banking sector, which has managed to record steady recovery post the pandemic. RBI data for FY 2022-23 indicates that credit growth, which is vital for output growth, came in at robust 15 per cent. Bank deposits continued to expand at a steady pace at 9.6 per cent. year-on-year during FY 2022-23, against 8.9 per cent. year-on-year growth observed during FY 2021-22. Banking industry remains a crucial component for the success of the India shining story.

B. Indian Banking Sector: Key Developments Indian Banking Sector: Robust and healthy

Credit offtake came in at 11 year high during FY 2022-23, as it overcame the pandemic induced lag with respect to deposit growth. The significant aspect of this growth is that it remained robust amid challenging factors, such as rising interest rates, geo-political uncertainties and slowing global growth.

The growth of credit has been broad-based across segments:

a. Credit to agriculture and allied activities came in strong¹.

b. Industry credit growth moderated slightly during FY 2022-23¹. In terms of scale-distribution, credit growth to MSMEs continue to be robust while credit growth accelerated for large industries.

c. Personal Loans and Non-Banking Financial Corporations (NBFCs) have been the key credit growth drivers for FY 2022-23²:

o Credit growth to services sector accelerated to 19.8 per cent. in March 2023 from 8.7 per cent. a year ago, due to the improved credit offtake to NBFCs and trade.

o Personal loans registered a growth of 20.6 per cent YoY in March 2023 as compared with 12.6 per cent a year ago, primarily driven by housing loans.

Sector	Growth (year-on-year)
	March 2023	March 2022
Agriculture & allied activities	15.4%	9.9%
Industries	5.7%	7.1%
I. Micro and Small	12.3%	21.5%
II. Medium	19.6%	71.4%
III. Large	3.0%	0.9%
Services	19.8%	8.9%

d. Non-Performing Assets (NPAs) continue to recover post pandemic jitters - Both gross non-performing asset (GNPA) and net non-performing assets (NNPA) moved to multi-year lows in FY 2022-23.

e. The FSR also highlights that the Indian banking sector would be able to withstand severe stress conditions in credit, as per extensive macro stress tests. This underscores Indias banking sector strength with respect to any significant spill-overs from a possible banking crisis in the developed economies.

f. According to a latest report by PwC and Association of Microfinance Institutions of India, global Microfinance Institutions (MFI) industry is expected to grow at compound annual growth rate of 11.6 per cent. MFIs, which have acted as a financial support system to low-income households by offering credit access, will continue to play a leading role in the growth process of India. Following data indicates the continued growth and widening scale of MFI in India³ :

• As per the latest data from Microfinance Institutions Network (MFIN), total Gross Loan Portfolio (GLP) of microfinance stood at ?3.20 lakh crore, with NBFC-MFIs share at 39 per cent. followed by banks at 36 per cent., Small Finance Bank (SFB) at 16 per cent. and NBFCs at 8 per cent.

• The portfolio growth has been pronounced for NBFC-MFIs (41 per cent. year-on-year) and NBFCs (40 per cent. year-on-year). Portfolio for banks rose by 11 per cent. while for SFB the growth came in at 22 per cent.

• The industry currently serves 6.4 crore unique borrowers through 12.6 crore loan accounts.

• The top 10 states (based on universe data) constitute 83.1 per cent. in terms of GLP. Bihar has emerged as the largest state in terms of portfolio outstanding followed by Tamil Nadu and West Bengal.

With strong and ever-improving public and financial institutions in place, India stands at an opportune moment to ride the next cycle of growth in the coming decades.

Indias age of economic strengthening

India is already the fastest-growing large economy in the world, having recorded a steady 5.5 per cent. average Gross Domestic Product (GDP) growth over the past decade. Indias per-capita income has been rising steadily - the annual per capita (net national income) at current prices is estimated at ?1,72,000 in FY 2022-23, up from ?86,647 in FY 2014-15, suggesting an increase of about 99 per cent⁴.

The Indian story in the next few decades is likely to be driven by the broad themes of:- a) demographic dividend,

b) effective and transformative policy making,

c) sustainability, d) extensive digitisation, and e) increased and improved credit access.

a. Young working population to fuel multi-decadal growth:

• India is at the cusp of reaping significant demographic dividends with the current median age at 28.4 years and is expected to rise to just 31.7 years by 2030. Over the next decade, India likely to account for roughly 20 per cent. of the global workforce growth, largest workforce growth of any single country in the world¹.

• Policy reforms enabling women entrepreneurship, like The Mahila Kisan Sashaktikaran Pariyojana (MKSP) scheme and Pradhan Mantri Mahila Shakti Kendra scheme, could potentially be a game- changer in the long-run.

• Widening middle class and demographic dividend will support growth engine via the channels of consumption and job creation.

b. Transformational policy making would have multiplier effect on growth:

• Production Linked Incentive (PLI) scheme could be crucial to lead India up the global value chain:

o PLIs were a set of industrial policies introduced at the outset of the pandemic, aimed at drawing foreign investments in strategic industries. Beginning with three industries (pharmaceuticals, electronics, and medical devices) in March 2020, the PLIs were expanded to cover another ten industries in November 2020.

o One of the major successful instances of PLI has been Ministry of Electronics and Information Technologys scheme for Large-Scale Electronics Manufacturing (LSEM). Post this scheme, approximately 97 per cent. of the phones used in India are made in India².

• Significant infrastructure drive:

o Indias infrastructure drive has taken off post the pandemic period, with capital expenditure outlay increased to a new record of ?10 lakh crore for the latest budget FY 2023-24, which is almost 200 per cent. increase in expenditure from FY 2019-20.

o Road construction has been healthy:

a. The budget estimate for road ministry in FY 2023-24 is ?2.7 lakh crore, which is more than five-and-a-half times higher than FY 2015-16.

b. In terms of outcomes, the performance has been nothing short of impressive: highway construction rate is seen to average around 30 km per day for April 2021- March 2023³.

o Pradhan Mantri Awas Yojana (PMAY) which is a housing scheme has also been a great success, primarily in rural India.

o Improved coverage and quality infrastructure would have a multiplier effect on Indias growth through job creation and improved productivity.

c. Digital infrastructure development key to drive productivity gains:

• Another significant success story is the ever- increasing usage of UPI (Unified Payments Interface). It has now the highest payment transaction volumes globally⁴.

• India is also making rapid strides to adopt 5G connectivity at the earliest. Accessible and extensive innovation will continue to positively impact the coverage and quality of different products (especially in finance) in the next few years.

• The central government has taken extensive measures to digitise services and data records. One such successful latest initiative is the Ayushman Bharat Digital Mission, which enabled integrating digital health infrastructure including personal health records.

• Data security and management regulated by efficient institutions, would be one of the key focus areas in upcoming years as new technologies dominate the landscape of business and services.

d. Switch to clean energy would enhance efficiency and promote sustainable growth:

• India has become the only G20 nation to achieve its 2030 targets from COP21 -nine years ahead of schedule in 2021. At present, 174 Gigawatts (GW) of the countrys 410 GW installed capacity (approx. 43 per cent.) is fuelled by renewable sources⁵.

• Pradhan Mantri Ujjwala Yojana (PMUY) was launched to provide poor households with a clean cooking fuel - LPG.

• India is also making efforts to emerge as a Green Hydrogen leader, with the official launch of the National Green Hydrogen Mission under the stewardship of the Ministry of New and Renewable Energy (MNRE). With a total financial outlay of ?19,744 crore ($US2.4 billion) to stimulate green hydrogen supply and demand, the mission aims to put India on the world map as a leader in the green hydrogen transition⁶.

e. Improving financial access remains vital to the success of the Indian growth story:

• Access to affordable credit remains one of the primary determinant of Indias overall growth trajectory.

• Micro, Small and Medium Enterprises (MSMEs) credit drive: Central Government in its Union Budget 2023-24 has underscored the importance of credit and have undertaken policy measures to boost the MSME sector by enabling higher credit flow and simplifying compliances.

With the launch of a revamped credit guarantee scheme worth ?9,000 crore for MSMEs¹, government expects enabling of collateral-free credit of ?2 lakh crore loans to small businesses.

• Recent data have indicated that credit access² to women has doubled in the last 5 years. The loan penetration among women borrowers has shot up to 14 per cent. in 2022 from 7 per cent. in 2017³. This is an excellent acknowledgement of governments efforts to enhance credit access to traditionally underserved segments.

Potential threats

• The impediment to the Indian growth story mainly stems from the external sector

- significant slowdown in overseas demand could materially temper Indias exports

- persisting global inflation could feed in as higher domestic inflation.

• Resumption of supply-chain bottlenecks:

Another risk to growth could be from worsening supply- chain bottlenecks (for e.g. due to persisting tension between Ukraine and Russia). This may result in pick-up of inflation along with tempering of growth expectations.

• Protracted banking turmoil:

Spill-over from protracted banking turmoil in the advanced economies still remains a risk. This may result in global liquidity tightening and risk-off environment. This risk, if resurfaces and worsens further, could have severe knock-on impacts.

• Technological innovation continues to gather pace in various sectors of the global economy. Rapid technological disruption may require traditional enterprises to rejig their business model quicker than expected.

• Adverse climatic changes remain a key threat to growth and development of the modern world. These changes range from erratic rainfall to rising water-levels. Businesses and policymakers would need to be cognizant of the potential of such changes while making decisions.

C. Strategy

Your Bank has clearly laid out its vision to be an affordable financial institution by providing simple, cost-effective and innovative financial solutions in a courteous and responsible manner. It intends to create value for all stakeholders through a committed and efficient team, robust practices, superior systems and technology while continuing to deepen its customer reach.

In line with the India growth story, your Bank continued on its upward trajectory in terms of extending businesses and remain in course to achieve its broad targets. Your Bank has been able to maintain steady growth in business through operational innovations and expanding geographical footprint:

• Your Bank has managed to outpace industry deposit growth as growth came in 12 per cent. YoY. This compares to around 10 per cent. YoY rise in industry-level deposits.

• The growth was driven by a high CASA ratio of 39.3 per cent. at the end of FY 2022-23 and a high share of retail deposits (71 per cent.).

• Your Bank is revamping its digital infrastructure at a brisk pace. Some of the key highlights in our digital banking space are as follows:

- Fully Digital Saving Account Neo+. The pilot for Neo+ Account with v-KYC has been launched in August 2022 across select branches and online customers.

- Our new and improved CIB platform was launched in May 2022 and this platform has won the Award for "Best Digital Channel/Platform Implementation" (December 2022) by IBS Intelligence.

• Your Bank has maintained its pace of growth in terms of employees and geographical footprint: During the year under review, manpower has increased by 16 per cent. from 60,211 as on March 31, 2022 to 69,702 as on March 31, 2023. Your Bank has additionally enhanced its geographical network with 1,411 retail branches, 4,390 banking units and 198 home loan centres in FY 2022-23.

• The advances of your Bank remained robust as growth came in at 10 per cent. YoY during the FY 2022-23. The growth was mainly driven by retail (232.5 per cent. YoY), commercial (72.4 per cent. YoY), housing (12.8 per cent. YoY) and SEBAL (18.2 per cent. YoY).

We are set on our endeavours to up-scale the business on the back of upgrading technologies, portfolio & product diversification and competent hiring. As global macroeconomic uncertainty subsides, your Bank is confident that the virtuous combination of ongoing digital transformation, incorporation of technical know-how along with competent manpower recruitment will continue to drive consistent multi-year growth.

Keeping in line with its long-term goals, your Banks longterm vision lays down the following objectives:

• Be a banker for the new Indian, through every step of their aspirational journey.

• Serve the needs of emerging India through innovative products and dedicated service.

• Enable entrepreneurs with timely resources in order to scale-up their businesses.

• Be a value-based employer of choice - to attract high- quality and motivated talent.

In order to drive this vision of your Bank, the following would be the key focus areas in the coming years:

• Given the huge untapped opportunity in the financial services space in India, your Bank in the medium term will continue to expand its current geographical reach.

• Diversification and improvement in quality of asset portfolio with modern and tightened underwriting and collection capabilities.

• Strengthening people capabilities, including hiring of fresh talent and focused learning of technical know-how.

• Extensive digital transformation: - greater investment in in-house technology, data analytics and digital capabilities. This would be further used to generate new products and devise strategies to deepen customer base.

• Improving the underlying linkages between technology and manpower to improve overall efficiency.

• Increased focus on strengthening various segments of retail loans as Small and Medium Enterprises (SME) segment is expected to contribute strongly to the growth story in the country.

• Leveraging key strengths to enhance value-addition:- Your Bank will also continue leverage its microcredit experience in strengthening its customer reach.

- Your Bank will also continue to strengthen its presence in affordable housing segment.

Your Bank has been a part of various social development programmes on enhancing education, health, poverty alleviation, livelihood promotion, market linkages, enterprise development, employment generation and financial literacy. Going forward, your Bank will continue to engage with the community through strategic interventions aimed at contributing to society.

Since its inception, your Bank has transformed with each milestone, to become better and stronger. As a universal Bank and in all its previous avatars, each transformation resulted in further broad-basing of services, growth and increased impact on people and communities. As the Bank is about to commence its ninth year of operations, your Bank continues to evolve focusing on serving the needs of emerging India and to be the banker for the new Indian, through every step of their aspiration journey.

Your Bank is committed to executing its strategy ensuring professional integrity, corporate governance and ethical standards, and all legal and regulatory compliance.

On the back of innovative products and robust core business growth, your Bank has delivered robust performance in terms of financial metrics. Below section discuses some of the key financial details.

D. Financial Performance of the Bank

The financial highlights for the financial year under review are presented below: Summary of Financial Performance

Particulars	For the financial year ended
	March 31, 2023	March 31, 2022
Deposits:	1,08,069.31	96,330.62
Advances (Net):	1,04,756.77	93,974.92
Total Assets/Liabilities	1,55,769.97	1,38,995.17
Net Interest Income	9,259.62	8,714.47
Non-Interest Income	2,468.55	2,822.50
Operating Expenses (excluding depreciation)	4,494.17	3,413.52
Profit before Depreciation, Provisions and Tax	7,234.00	8,123.44
Less: Depreciation	142.65	110.04
Less: Provisions	4,198.37	7,884.78
Profit Before Tax (PBT)	2,892.98	128.62
Less: Provision for Tax	698.35	2.83
Profit After Tax (PAT)	2,194.64	125.79
Balance in Profit & Loss Account brought forward from previous year	6,009.94	6,171.00
Less: Appropriations	750.79	286.86
Balance carried over to Balance Sheet	7,453.79	6,009.94
EPS (Basic) (in ^)	13.62	0.78
EPS (Diluted) (in ^)	13.62	0.78

The financial performance of your Bank during the financial year ended March 31, 2023, remained healthy with the Total Net Revenue (Net Interest Income plus Other Income) rising by 1.66 per cent. to ?11,728.17 crore from ?11,536.96 crore during the previous financial year. Net Interest Income grew by 6.25 per cent. to ?9,259.62 crore. The Net Interest Margin (NIM) was 7.2 per cent. during FY 2022-23 against 8.2 per cent during the FY2021-22.

Operating (Non-Interest) Expenses increased to ?4,636.82 crore from ?3,523.56 crore during FY 2022-23. Staffing expenses contributed to 27.18 per cent. of this increase. During the FY under review, your Bank has set up 222 new branches and 138 new Banking Units. Employee strength increased to 69,702 during FY 2022-23 from 60,211 as on March 31, 2022. Staff expenses also went up due to annual wage revisions and there was a 15.76 per cent. increase in staff strength. Consequently, the cost to income ratio increased to 39.5 per cent. from 30.5 per cent. for FY 2021-22.

The Profit After Tax (PAT) for FY 2022-23 stood at ?2,194.64 crore, an increase of more than fifteen times. over the previous financial year. The Total Provisions and Contingencies (including tax provisions) was ?4,896.71 crore as compared to ?7,887.61 crore in FY 2021-22. Consequently, the Return on Average Equity (ROAE) was 11.8 per cent. for FY 2022-23 against 0.8 per cent. for FY 2021-22. Return on Average Asset (ROAA) was 1.6 per cent. for FY 2022-23 against 0.1 per cent for FY 2021-22. Your Banks basic as well as diluted Earnings Per Share (EPS) increased from ?0.78 for FY 2021-22 to ?13.62 for FY 2022-23.

However, reflecting on steady growth in the balance sheet, Total Liabilities (including capital and reserves) increased by 12.07 per cent. from ?1,38,995.17 crore as on March 31, 2022 to ?1,55,769.97 crore as on March 31, 2023 whereas Total Advances (Net) stood at ?1,04,756.77 crore, a growth of 11.47 per cent. over FY 2021-22. Total Business of your Bank increased to ?2,17,191 crore [Gross Advances: ?1,09,122 crore (includes PTC and TLTRO) and Deposits: ?1,08,069 crore as on March 31, 2023] from previous year of ?1,95,669 crore [Gross Advances: ?99,338 crore (includes PTC and TLTRO) and Deposits: Rs. 96,331 crore] as on March 31, 2022.

Priority Sector Lending and Investment

RBI has mandated Priority Sector Lending (PSL) of 40 per cent. of advances for all the banks. Your Bank continues to focus on financial inclusion by providing various financial services to the underserved. During FY 2022-23, your Banks PSL was ?54,175.67 crore as on March 31, 2023 as compared to ?56,397.10 crore as on March 31, 2022. At the end of FY 2022-23, PSL as a proportion of the gross advances of ?1,08,827.12 crore was 50 per cent.

Key Ratios

Particulars	FY 2022-23	FY 2021-22
Fee to total income@	13.44%	16.91%
Cost to income"	39.54%	30.54%
Earnings per share*	?13.62	?0.78
Book value per share*	?114.24	?100.14
Return on average assets*	1.56%	0.11%
Return on average net worth*	11.77%	0.76%
Operating Profit to Average Total Assets5	5.03%	6.76%
Net Interest Margin	7.21%	8.17%

@ lower fee to total income for the current FY due to lower PSLC fee income

• increased cost to income ratio due to increase in operational costs

• increase due to higher profit for the FY as compared to previous FY $ due to increase in Average Total Assets in current FY compared to

previous FY

E. Business Segment-wise Performance 1. Banking Unit (BU) Business

Your Bank is dedicated to enhance banking abilities to achieve the dreams and achievements of borrowers at the bottom of the pyramid for their development and transformation. During FY 2022-23, your Bank opened 138 new BUs pan- India with a focus on financial inclusion and to enhance portfolio quality by limiting the number of customers served by a BU. Your Banks commitment towards financial inclusion is also reflected in the fact that it offered loans to 23,77,606 new borrowers during FY 2022-23. The portfolio for Group Loans and SBAL stood at ?38,059 crore and ?18,765 crore, respectively, at the end of FY 2022-23 as your Bank worked towards bringing additional measures in credit control in order to improve the quality of portfolio.

Your Bank now has nine loans products under its Group Loans, SBAL and other categories which are provided from Banking Unit outlets to cater better to the varied demands and needs of its customers:

Group loans

• Srishti Loan: Timely funds to start a new business or grow an existing one. Loan size is from ?15,000 to ?1,00,000.

• Subriddhi Loan: Loan amount is up to 50 per cent. of the disbursement amount of running primary loan. Sanctioned to help customers fulfil their extra business requirement during their ongoing loan.

• Suraksha Loan: Loan size is up to ?15,000 and is sanctioned to help existing customers meet their emergency expenses, e.g.- medical, drinking water and sanitation.

• Sushiksha Loan: Loan size is up to ?10,000 and is sanctioned to help customers meet expenses towards the education of their children.

Small Business and Agri Loans

• Sahayata Loan: Loan to fund growing business needs of individuals involved in an array of income generation activities. Loan amount is from ?50,001 to ?3,00,000.

• Suyog Loan: Loan amount is up to 50 per cent. of the disbursement amount of running Sahayata loan. Sanctioned to help customers fulfil their additional short-term business requirement during their ongoing loan.

• Baazar Loan: With a loan size from ?26,000 to ?1,50,000, this product is for small entrepreneurs, who have an existing super-saver account with your Bank. This loan provides financial support to deposit customers for their working capital needs.

Other loans

• Micro Home Loan: Your Bank offers Micro Home Loan ranging from ?1,00,000 to ?10,00,000 to existing Banking Unit Borrowers for construction as well as renovation of their houses so that their dream of their own house does not remain unfulfilled.

• Two-wheeler Loan: Your Bank offers two-wheeler loans ranging from ?30,000 to ?1,20,000 to existing Banking Unit Borrowers.

During the FY 2022-23, your Bank has taken various initiatives:

• During the pandemic and post pandemic restrictions, many of the customers of your Bank lost their livelihoods, which made them financially vulnerable. To strengthen the customers, your Bank came up with products specifically designed for these situations and ensured that the customers get the maximum financial assistance during the toughest time in their lives.

• To overcome digital-based challenges, your Bank is giving training to make the customers aware about the benefits of digital payments and various other aspects, such as seeding bank accounts with mobile number and Aadhaar.

• Your Bank has always placed strong emphasis on training and development to up-skill and reskill (through online and offline programs).

• Your Bank has taken several initiative to strengthen the credit assessment process for Group loan and SBAL, and other loans in order to have a better portfolio.

2. Branch Banking

Your Bank takes pride in offering a wide range of retail liability products that cater to your diverse financial needs. Your Bank has a strong focus on customer service and constantly strives to provide innovative and convenient banking solutions.

During FY 2022-23, your Banks deposit portfolio witnessed robust growth, with a total deposit base of ?1,08,069.31 crore as of March 31, 2023. This represents a YoY growth of 12 per cent. in the overall deposit franchise.

Your Bank has implemented various initiatives to ensure that the retail deposit portfolio remains competitive and meets the evolving needs of customers, with extra attention to the Affluent segment. Your Bank has leveraged technology to enhance the customer experience and offer digital payment solutions that are secure and convenient. Your Banks strong network of branches is a key element of the success and enables it to serve customers effectively. A total of 222 Branches were added during this financial year taking your Banks footmark to 1,411 branches, covering a wide range of locations across the country.

The launch of "SMART- Android PoS" is a testament to the commitment to providing innovative and customercentric solutions to merchants. Your Bank is confident that this product will further strengthen the current account customer base as a leading player in the POS space and will help to continue delivering value to customers. Your Bank is confident that the merchants will be excited about the range of offerings and features that SMART- Android POS brings to the table. Your Bank will keep leveraging technology to offer new and enhanced digital solutions that are secure, convenient, and user-friendly.

Your Bank remains committed to providing customers with best-in-class banking solutions and looks forward to serving them with the same zeal and commitment in the future.

3. Commercial Banking

In order to ensure inclusive book growth along with effective portfolio monitoring, the SME Segment under Commercial Banking was separated into two Groups, i.e., Business Banking Group (BBG) and Mid-Market Group (MMG).

a. Business Banking Group (BBG)

BBG offers loan products at competitive rates of interest to SME borrowers for meeting their working capital or capital expenditure requirements, including non-fund-based facilities. These are secured loans generally between Rs. 25 lakh to Rs. 5 crore extended to businesses involved in manufacturing, trading, and services, extended in the form of secured credit facilities including term loan, cash credit, overdraft or lease rental discounting or as non-fund-based facilities like letter of credit or bank guarantee. The BBG fund based Book was at ?535 crore as on March 31, 2023 as against ?297 crore as on March 31, 2022, registering a growth of about 80 per cent. during FY 2022-23.

b. Mid-Market Group (MMG)

MMG offers loan products at competitive rates of interest to majorly medium enterprises and mid corporate borrowers for meeting their working capital or capital expenditure requirements, including non-fund-based facilities. These are secured loans of generally more than ?5 crore extended to businesses involved in manufacturing, trading, and services, extended in the form of secured credit facilities including term loan, cash credit, overdraft

or lease rental discounting or as non-fund-based facilities like letter of credit or bank guarantee. The MMG fund based Book was at ?3,605 crore as on March 31, 2023 as against ?1,871 crore as on March 31, 2022, registering a growth of about 93 per cent. during FY 2022-23.

In line with various government initiatives and regulatory instructions, Board-approved Credit and related Policies are in place to continue extending support in the aftermath of the COVID-19 pandemic, in the form of Emergency Credit Line Guarantee Scheme, Resolution Framework, etc., to the deserving and eligible borrowers, based on requests.

c. Commercial - LAP

Your Bank caters to proprietorship, partnership, private limited companies, public limited companies (not listed on exchange) and individual business for Loans Against Property (LAP). This is in line with your Banks overall objective of increasing the secured lending portfolio.

Launched towards the end of FY 2022-23, your Bank has laid an ambitious plan to scale up and build quality book by end of FY 2023-24. As your Bank moves along, it would use technology for better turnaround time. Your Bank has a bouquet of programs to cater to most of the sectors in the market in the LAP space, with hiring of people underway. The book-size stood at ?53.14 crore, as on March 31, 2023.

d. Financial Institution Group

Your Bank considers Institutional Lending to NonBanking Financial Companies (NBFCs)/Housing Finance Companies (HFCs) and NBFC-MFIs, primarily, for on-lending activities. The NBFC-MFI business includes lending to Microfinance Institutions (MFIs), Societies and Trusts engaged in microfinance activities.

While most of these loans are extended as Term Loans, your Bank also has credit exposure through Direct Assignments and investment exposures through Pass Through Certificates (PTCs) and Non-Convertible Debentures (NCDs). The NBFC (including HFCs) business primarily includes Term Loan product for on-lending purpose, and is also foraying into working capital loan, Direct Assignments and co-lending activities.

The book-size was at ?5,519.34 crore as on March 31, 2022, which has grown to ?10,386.72 crore as on March 31, 2023. The Institutional book, comprising lending to NBFCs and MFIs, has grown by 88 per cent. Your Bank has expanded its reach while building Books through diversified asset class as well as geographies during the FY under review.

4. Small Enterprises Loan (SEL)

The Small Enterprise Loan vertical of your Bank empowers small businesses which are regularly in need of short to medium-term funding to expand their business by extending to them business loans tailored to suit their needs.

The following products are presently offered under SEL:

• SEL Term Loans (^1.01 lakh to ^10 lakh)

These are term loans with a tenure of one to three years, and they are aimed towards financing working capital or asset creation needs of small businesses or other short-term business requirements.

• SEL Max Loans (^10.01 lakh to ^25 lakh)

This is similar to SEL Term Loans, however it is targeted towards slightly larger enterprises in terms of revenue.

• SEL Secured Overdraft Loans (^10.01 lakh to ^25 lakh)

This overdraft product has been added to your Banks SEL product bouquet during FY 2022-23.

5. Agribusiness Loans

Your Bank recognizes the importance of agricultural sector and offers a wide range of credit facilities to provide financial support to all participants in the Agri value-chain system. Currently, your Bank provides KCC loans to borrowers engaged in farming activities, including animal husbandry, pisciculture etc. with competitive interest rates and minimal documentation. Moreover, your Bank is expanding its reach by offering both fund-based and non-fund-based facilities to entities involved in agri-ancillary services, such as food and agri processors, agri input dealers, etc. Additionally, your Bank provides credit facilities to support development of agricultural infrastructure.

6. Housing Finance

Your Bank offers loans for purchase, construction, repair, renovation and extension of dwelling units to individuals. Loan Against Property (LAP) on self-occupied residential property and loan against rent receivables on commercial property are also offered.

During the year under review, the Housing loan services were extended from additional 33 Centres taking the presence to 389 Centres across 20 states and 2 Union Territories. Your Bank disbursed ?6,129 crore during the FY, clocking a growth in disbursement of 17 per cent. Consequently, the loan book has grown to ?26,577 crore indicating a growth of 12.8 per cent.

While your Bank continues to focus on Affordable Home Loans and a majority of loans are having a ticket size below ?20 lakh, during the FY, your Bank continued a special campaign for higher ticket loans that was launched last year offering attractive and competitive rates of interest. The

campaign received a very good response. Your Bank has also started a Direct Sales Agent (DSA) channel for sourcing of home loans. The DSA channel has picked up well and the contribution from the channel has been increasing.

7. Retail Assets

With an objective to serve the financing needs of a larger population and to diversify the risk, your Bank has launched and strengthened several retail asset products during FY 2022-23. Customers can now avail various loans, like Gold Loans, Personal Loans, Two-Wheeler Loans, Car Loans and CVCE Loans from the Bank:

• Gold Loan: Gold loans are given for a ticket size ranging from ?10,000 to ?40,00,000 for a tenure up to 3 years with a competitive rate of interest.

• Personal Loan: Personal loans are given for ticket size from ?50,000 to ?25,00,000 for tenure up to 5 years at a competitive rate of interest.

• Two-Wheeler Loans: The two wheeler loan caters to the customers needs by giving loans starting from ?5,000 to ?5,00,000.

• Car Loan: Your Bank has built a sizable book of new car loans. Such loans are ranging from ?1 lakh to ?1 crore. Your Bank has also launched new product Used car Loan during the second half of FY 2022-23.

• CVCE Loan: CVCE product was launched this year for self-employed customers & non-individual entities, looking for a loan from ?1 lakh to ?15 crore.

8. Third Party Products

Your Bank currently distributes mutual funds, life insurance and general insurance, including health insurance products. The FY under review has been a year of collaboration and resurgence. Your Bank has also been working tirelessly to build an analytics and technology driven business franchisee to offer the best in class insurance solutions to its customer base. Your Bank has launched the distribution of Mutual Funds through its Retail Internet Banking (RIB) platform this year in its continuous efforts towards offering customers further convenience and benefits.

The total mutual fund AUM managed under your Banks code during FY 2022-23 was ?582.79 crore, earning an income of ?5.14 crore. A total of ?207.21 crore and ?497.07 crore of general and retail life insurance business, respectively, was garnered through the retail network during FY 2022-23, earning a fee income of ?26.65 crore and ?153.52 crore, respectively. During FY under review, the life insurance business through the existing arrangement in all asset verticals amounted to ?1,146.29 crore, earning an income of ?58.10 crore. Your Bank has also earned ?0.11 crore as commission for distribution of Atal Pension Yojana, NPS Lite Swavalamban schemes of PFRDA and others during the FY 2022-23.

9. Merchant Acquiring Business

Our terminals are now capable of accepting NFC transactions - the key idea is to replace the swipe & PIN features for small value transactions by tapping the card on the terminal. During the FY under review, your Bank has launched first of its kind "Android PoS", a testament to the commitment to providing innovative and customer-centric solutions to merchants.

During FY 2022-23, your Bank has installed 3,780 EDC-PoS terminals, and numbers grew by 134 per cent. as compared to previous FY. Transactions worth ?5,314 crore were carried out on your Banks installed terminals. Our new POS models are NCMC (National Common Mobility Card) certified which will help to accept mobility cards in circulations.

10. Digitising Bandhan 2.0

New and transformative technologies are rapidly entering the workplace enabling businesses to innovate and thrive in an increasingly digital world. Digital transformation requires a shift away from traditional thinking and towards a more collaborative, experimental approach.

To ensure we continue to be a bank of choice for our customer and constantly build on the foundation of your trust, your Bank is committed to its digital transformation journey. Bandhan Bank aspires to move towards a Digitally enabled bank in the near future by:

• Delivering a host of digital products across liability, Asset and Payments in a paperless and presence less manner.

• Digitizing physical transactions and make it available in a seamless and intuitive manner

• Build a future ready Digital and Technology landscape to drive product innovation

• Create an infrastructure for business scale

Key Digital Initiatives for FY 2022-23

Your Bank has launched Fully Digital Saving Account Neo+. The pilot for Neo+ Account with vKYC has been launched in August 2022 across select branches and online customers.

Your Bank has also launched its all new Corporate Banking platform. Our new and improved CIB platform was launched in May 2022 and this platform has won the Award for "Best Digital Channel/Platform Implementation" (December 2022) by IBS Intelligence.

The bank is working on the launch of the All New Internet Banking and Mobile Banking . The new platforms will offer a host of additional features to help our customers meet their everyday banking needs.

F. Internal control systems and their adequacy

Your Bank has implemented robust internal controls across all processes and departments. These controls are driven through various well-defined policies and procedures, which are reviewed periodically. Your Bank has a procedure of testing the controls at regular intervals for their design and operational effectiveness to ascertain the reliability and authenticity of financial information.

Your Bank has an Internal Audit Department (IAD) and a Compliance Department, which independently carry out the evaluation of the adequacy of all internal controls. These departments ensure that operation and business units adhere to laid down internal processes and procedures as well as to regulatory and legal requirements. The IAD also proactively recommends improvements in operational processes and service quality. Your Bank has put in place extensive internal controls including audit trails, appropriate segregation of front and back-office operations, posttransaction monitoring processes at the back end to mitigate operational risks. It further ensures independent checks and balances, and adherence to the laid down policies and procedures of your Bank that are in line with regulatory guidelines. Your Bank has adhered to the highest standards of compliance and governance and has placed controls and appropriate structure to ensure this. To safeguard the independence, the performance evaluation of the Chief Compliance Officer (CCO) and the Chief Audit Executive (CAE) is carried out by the Audit Committee of the Board. It further reviews the effectiveness of controls and compliance with regulatory guidelines. The Board of Directors confirms that there are internal controls in place with reference to the Financial Statement and that such controls are operating effectively. Further details are provided under the Internal Financial Controls, Audit and Compliance section of the Boards Report.

G. Risks and concerns

Your Bank is exposed to various risks by the very nature of its business. Your Bank has put in place a comprehensive Enterprise wide Integrated Risk Management Framework supported by detailed policies and processes for management of Credit Risk, Market Risk, Liquidity Risk, Operational Risk and various other risks. Please refer to the section Risk Management of the Boards Report for details.

H. Material Development in Human Resources

Emerging from the post pandemic induced economic slowdown, your Bank has taken confident steps to revamp the strategic initiatives in Business development and emphasized on building capabilities and capacities to enhance employee skills, promoting ethical practices and ensuring employee engagement. Your Bank has specifically emphasized its expansion into new Business Verticals and continued branch expansion for better penetration across

the country, reaching out to new locations. Your Bank has made digital strides in all areas, demonstrating an exemplary example of an Empathetic work Culture.

As a testimony of our effort towards Human resources, your Bank has been awarded "Gallup Exceptional Workplace Award", where we rank amongst the most elite organizations that are truly making a difference in changing the perception of Life.

Building Capabilities and Capacities

Your Banks key talent acquisition processes remained on track during FY 2022-23; manpower increased by 16 per cent. from 60,211 in FY 2021-22 to 69,702 as of March 31, 2023. Since the inception of your Bank, the overall manpower has increased by 275 per cent., and the number of branches has increased by 138 per cent. during the same period. Your Bank has enhanced its geographical network with 1,411 Retail Branches, 4,390 Banking Units, and 198 Home Loan centres in FY 2022-23.

Your Bank has introduced several new channels, such as Merchant Acquisition Business, Current account business, Government business, and Affluent business, creating a platform of pronounced business penetration.

Talent Acquisition and Management

Your Bank continues to engage in hiring and nurturing young talent from premier institutes in the country. Conducted both offline and online campus creating a base of enthusiastic and energetic fresher talent base of Campus recruits. Your Bank across the country has covered almost 154 Campuses, recruiting 1,102 fresh talents across Tiers.

Revamping the Retail Asset structure with the addition of 1,229 manpower during FY 2022-23 compared to 1,100 manpower during FY 2021-22. 31 Retail Asset Centres were introduced during the FY.

Employee Engagement

Your Bank aims to create a workplace of high engagement, resilience, and empathy. Your Bank conducted a survey in association with Gallup, creating an opportunity for 40,000 employees to voice their opinions, feelings intended towards understanding the quality of employee engagement. Your Bank is dedicated to improving the employee engagement levels by creating a culture of transparency and the highest ethical standards.

Performance Management

Your Bank conducted a competency based grade promotion, and 9,307 employees were promoted during FY 2022-23. Another 5,690 employees were identified for role elevation during FY 2022-23 in the Bank to provide opportunities to home grown talent.

Your Bank implemented a structured and framework based Succession plan across key roles in the year to put up a talent pipeline in place.

Data Analytics and Technology Adoption

In its adaptation towards Digitization for an enhanced employee experience, your Bank has transformed the Loan Origination System process in Retail assets and developed new applications like Bandhan Express in Auto Loan Business.

To further enhance the focus on analytics and data science, your bank has constituted a separate function to leverage data driven decision making.

HR operations has automated key employee initiatives like Internal Job postings, talent acquisition and management modules thereby increasing speed and efficiency in these operations

Learning & Development

Your Bank has continued to invest in the training, skilling, and development of its workforce. During the FY, 99 per cent. of the employees attended at least one training. Over 16 lakh training hours were provided to your Banks personnel in the year, with each employee receiving an average of 21.7 hours of learning.

Your Bank has assessed the ongoing capacity-building programs of numerous renowned institutions (CAFRAL, CAB, IDRBT, NIBM, IIBF, XLRI, IIBM, COS, ASCI, etc.) and enrolled 2,272 employee nominations in external training programs for building capacity and developing employees.

To foster a culture of ethics, values, and good governance, your Bank has organized different training programs through internal and external channels. A total of 40,626 employees have been trained internally, and 83 senior management employees participated in a comprehensive external training course on "Ethics in Banking" during FY 2022-23.

To increase staff awareness of RBI requirements and enhance understanding of KYC-AML and CFT regulations on a continuous basis, your Bank has organized and provided training through a variety of channels, including internal, external, and e-learning programs.

Employee Wellbeing

Your Bank recognises the priority of employee well-being to create and foster a healthy and engaged workforce. These

initiatives encompass a range of programs at enhancing the physical, mental and emotional well-being of employees. Your Bank offers free unlimited online video based medical consultations, and other benefits to its employees and introduced "Practo- B Well Digi care Plan".

I. Culture of Ethics

The Code of Conduct and Ethics (Code) articulates your Banks commitment to conduct business in accordance with the highest ethical standards and in compliance with all applicable laws, rules and regulations. At Bandhan Bank, ethical behaviour is doing "what is right when no one is watching". Making it inseparable from honesty, integrity and good judgment, all employees follow the Code with a high degree of professional and ethical standards.

In the journey of over seven years, your Bank has strengthened its workforce by 4.3x resulting in an exciting blend of the energetic new and experienced old workforce focussed towards a culture of professionalism, value driven growth and ethical governance. Human Resources has strategically focussed on a supportive and collaborative work environment, remaining customer-centric, performance driven and future ready.

J. Disclosure of Accounting Treatment

The Financial Statement have been prepared under the historical cost convention and on the accrual basis of accounting, unless otherwise stated and in compliance with the requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of your Bank used in the preparation of the Financial Statement conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the RBI from time to time, the accounting standards notified under Section 133 of the Companies Act, 2013, read together with the Companies (Accounting Standards) Rules, 2021, as amended, from time to time, to the extent applicable and practices generally prevalent in the banking industry in India.

	For and on behalf of the Board of Directors
	Bandhan Bank Limited
	Anup Kumar Sinha
Place: Kolkata	Non-Executive (Independent) Chairman
Date: May 26, 2023	(DIN: 08249893)