Bandhan Bank hits a three-year low circuit, concerns rise on asset quality

Bandhan Bank hits a three-year low circuit as investors show concern over its asset qualities. The bank's net interest income also fell.

Bandhan Bank hits a three-year low circuit, concerns rise on asset quality

Kolkata-based lender Bandhan Bank’s shares fell 6% on the BSE on Tuesday, March 28th due to investors’ concern regarding its asset quality. The share prices of Bandhan Bank hit a three-year low of Rs 185.45, the first time since March 25th 2020, when the stock prices dropped to a record-low Rs 152.35.

Earlier, in the third quarter (Q3) of the current financial year (FY), 2022-23, Bandhan Bank’s shares recorded a 66.2% year-over-year (Y-o-Y) decline. The stocks of the bank fell by 23% over the past two months as its earnings dipped to Rs 2.91bn and as its net interest income (NII) also fell by 2.1% on a Y-o-Y basis.

Bandhan Bank has emphasised that its NII fell due to higher interest revenue reversals, as well as higher funding costs. In comparison to FY 2022-23 net interest margin of 7%, Bandhan Bank’s quarterly net interest margin was 6.5%. Bandhan Bank sold written-off debts totalling Rs 88.97bn during the quarter for a total of Rs 8.01bn, of which Rs 3.87bn were given as security receipts.

The bank’s management exhibited optimism regarding a significant increase in performance in Q4 based on the early trends and development reports.

Bandhan Bank recorded a subdued financial performance in the Q3 of FY 2022-23, according to experts at KRChoksey Shares and Securities. This slowed down the overall business development, which had an effect on NII and increased levels of provisions, which hurt overall profitability. Due to slower development in its microfinance institution (MFI) segment, the loan increase was modest, it was noted.

However, on the asset quality front, experts continue to be wary of the MFI-stressed asset pool of the bank and, as a result, have marginally increased credit costs. The trading company announced it anticipates a 16.6% CAGR in NII, an 8.8% CAGR in PPoP, and a 251.2% CAGR in PAT over the period of FY 2021-22 to FY 2024-25.

Although Bandhan Bank’s management exhibited confidence in the ongoing borrower behaviour corrections reflecting in the gradual reduction of stress in its core Emerging Entrepreneurs Business (EEB) portfolio, analysts at HDFC Securities had previously stated that they were wary of any near-term effects from the bank’s impending hard pivot.

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