Bandhan Bank slumps over 7% as weak asset quality in Q3 upsets Street; release of govt claims eyed

Bandhan Bank's third quarter (Q3FY24) financials disappointed Street after the lender's asset quality continued to remain elevated. Though brokerages maintained 'buy' calls on the lender, they reduced their respective target prices after a forensic audit was being conducted by National Credit Guarantee Trustee Company (NCGTC) to assess evergreening of loans.

The stock of Bandhan Bank crashed more than seven percent to Rs 199 per share on February 12. It has declined 12 percent in the past one month, as against a 1.8 percent drop in the benchmark Sensex.

JPMorgan analysts, for instance, maintained an 'overweight' call on Bandhan Bank but cut target price to Rs 270 per share from Rs 320, saying that key catalyst over six months would be news around release of claims made under government guarantees.

"The release of claims under government guarantees is key for driving net non performing loans (NPLs) to under 1 percent," they wrote in a post-result review note.

Bandhan Bank's net NPA rose to 2.2 percent in Q3FY24, as against 1.9 percent in the year-ago period. Gross NPA, however, declined to seven percent in Q3FY24 from 7.2 percent in Q3FY23.

CLSA, too, reduced target price to 250 per share for Bandhan Bank and shared an 'outperform' call. "Gross NPAs of MFI business was up 70 bps QoQ, which saw a third straight quarterly increase. We trim EPS estimate by 3-9 percent over CL24-26C," they added.

On the other hand, analysts at Motilal Oswal shared a 'neutral' rating on Bandhan Bank, with a target price of Rs 245 per share. "We remain watchful of asset quality and the potential delayed recovery from Credit Guarantee Fund for Micro Units (CGMFU) due to ongoing audit and Emergency Credit Line Guarantee Scheme (ECLGS)," the brokerage firm said.

The NCGTC will perform data analytics on both CGMFU and ECLGS portfolios to identify patterns of evergreening of loans. It will cover Rs 20,800 crore of loans covered under CGMFU and Rs 2,500 crore of loans covered under government's ECLGS.

Nearly 85 percent of the portfolio has been repaid; however, the balance remains in the stress pool. Against the stress pool, the bank has ~89 percent of provisions. The management expects the audit of CGFMU claims to be completed in few months and expects it to be fully recovered.

The forensic audit comes after the lender claimed Rs 1,296 crore in Q2FY24 after receiving Rs 917 crore claims in December 2022.

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