Bandhan Bank tanks 9% as MD & CEO Ghosh announces retirement plan

Shares of Bandhan Bank tanked 9 per cent to Rs 179.55 on the BSE in Monday’s intra-day trade in an otherwise firm market after Chandra Shekhar Ghosh, Managing Director and Chief Executive Officer (MD and CEO), of the bank said would retire after the completion of his current tenure on July 9. Ghosh has led the bank since July 10, 2015.

At 09:17 am; Bandhan Bank was trading 8.5 per cent lower at Rs 180.70, as compared to 0.33 per cent rise in the S&P BSE Sensex. The stock had hit a 52-week low of Rs 173.45 on March 14, 2024. The counter has seen huge trading volumes with a combined 34 million equity changing hands on the NSE and BSE.

In 2006, Bandhan acquired a Non-Banking Finance Company (NBFC) and named it Bandhan Financial Services Ltd (BFSL). BFSL moved on with microfinance activities, while the NGO continued with development work. It became the largest microfinance institution in the country in 2010. In 2013, the Government of India announced guidelines for issuing fresh bank licenses. BFSL applied for a banking license in July 2013. Bandhan Bank was launched on August 23, 2015 with 501 branches and 50 ATMs spread across 24 States.

Recently, the bank hired several key management personnel to drive its overall business performance. The management bandwidth has thus expanded with the onboarding of Rajinder Kumar Babbar – ED & Chief Business Officer, Ratan Kumar Kesh – ED and Chief Operating Officer, Santosh Nair – Head Consumer Lending and Mortgages, and Rajeev Mantri – CFO. The bank now has two Executive Directors on the Board vs. the regulatory requirement of having a minimum of one ED.

Bandhan Bank has witnessed high asset quality pressures over the past few years, with persistent stress in the microfinance institutions (MFI) segment. The ongoing asset quality cleanup has thus led to a decline in the SMA book in the MFI segment to 3.3 per cent currently from 11.1 per cent two years ago. While the new book formed after the Covid disruption has been performing well, the bank expects residual stress to continue from the older book, albeit at a more moderate pace.

During the December quarter (Q3FY24), the bank also experienced higher slippages due to system migration. However, this is considered a onetime occurrence, and Motilal Oswal Financial Services (MOFSL) expects the asset quality to improve over the coming quarters.

The bank anticipates completing the Credit Guarantee Fund for Micro Units (CGFMU) recovery of Rs 1,296 crore in the next few months. However, the brokerage firm remains watchful of the ongoing audit and is not factoring in any recovery in its estimates, MOFSL said in its report dated April 1, 2024.

The stock has seen significant de-rating. The ongoing audit regarding the CGFMU claim has hit sentiments and remains a major overhang on the stock performance in near term. Further, the RBI's approval for a fresh CEO term is also a key monitorable. “We expect Bandhan Bank to deliver steady improvement in RoA/RoE to about 2 per cent/17 per cent by FY26, driven by loan growth recovery, moderation in credit costs, and largely stable margins,” MOFSL said.