Private bank shares under pressure; AU SFB, Bandhan, RBL Bank tank up to 9%

As of 10:09 am, the S&P BSE Private Bank and Nifty Private Bank index were down 1 per cent each, as compared to 0.6 per cent decline on the benchmarks, S&P BSE Sensex and Nifty50 index.

Shares of private sector banks were under pressure with AU Small Finance Bank (SFB), RBL Bank and Bandhan Bank sliding up to 9 per cent on profitability concerns. As of 10:09 am, the S&P BSE Private Bank and Nifty Private Bank index were down 1 per cent each, when compared with a 0.6 per cent decline on the benchmarks, S&P BSE Sensex and Nifty50 index.

Among the individual stocks, AU SFB tumbled 9 per cent to Rs 565.10 amid heavy volumes. In the past one month, the stock has underperformed the market by falling 12 per cent, as against a 4 per cent decline in the benchmark indices. The trading volumes at the counter nearly doubled with a combined 3.2 million equity shares changing hands on the NSE and BSE.

With the past one month decline, AU SFB has fallen 23 per cent from its 52-week high of Rs 732.90 touched on April 21, 2022. The bank had issued bonus shares in the ratio of 1:1.

AU SFB’s continued investments in people, digital, branding, products and distribution to build a future-ready bank are likely to be a drag on its medium-term profitability, according to analysts at HDFC Securities.

“The bank continued to step up investments in its franchise-building blocks and new asset classes, which are likely to drag medium-term profitability metrics (opex to assets at around 4 per cent). We also wish to draw the investor’s attention to the bank’s historically-low LGDs that were hitherto built on a highly-secured portfolio, but this is now changing,” the brokerage firm said in its Q4 result update.

Shares of RBL Bank slipped 5 per cent to Rs 84.80, and have plunged 26 per cent in the past one month. The stock had hit a 52-week low of Rs 74.15 on June 20, 2022. On June 11, the Reserve Bank of India (RBI) approved R Subramaniakumar's appointment as the managing director & chief executive officer (MD & CEO) of the private sector lender.

Previously, Subramaniakumar was the former managing director and chief executive director of state-run Indian Overseas Bank. He was also appointed as the administrator of Dewan Housing Finance Co Ltd after the mortgage financier’s board was superseded.

According to analysts at Kotak Institutional Equities, RBL Bank has addressed one concern, however, issues on strategy of the bank given its reliance on high yielding product segments, employee retention, and recovery in return ratios and growth remain unclear.

Shares of Bandhan Bank dipped 3 per cent to Rs 267.70 on the BSE in intra-day trade. The stock has corrected 23 per cent from its 52-week high of Rs 349.50 on May 17, 2022.

The market price of Bandhan Bank has corrected sharply in recent days owing to concerns over its Assam portfolio as 85-90 per cent of total districts in the state have been affected by severe floods. As Assam constitutes around 9 per cent of micro finance institution (MFI) loans and around 8 per cent of total banking units for Bandhan Bank, the ongoing flood situation will affect collection trends over the near term, Motilal Oswal Financial Services said in its stock update.

The performance of the MFI industry has been resilient in recent months, with assets stress declining and growth trajectory holding strong over 4QFY22. This is reflected in Bandhan Bank’s performance as well. Given the ongoing developments in Assam, we expect the stress dissolution rate to moderate, while the recovery and ongoing improvement in CE may also get affected, the brokerage firm said.