Kolkata-based Bandhan Bank saw its share price jump over 12 per cent on Friday after two major uncertainties concerning the bank — the appointment of a new MD & CEO and the outcome of the forensic audit by the National Credit Guarantee Trustee Company (NCGTC) being not worrisome as was feared — were resolved.
On Thursday, the bank informed the exchanges that it has received the Reserve Bank of India (RBI)’s approval to appoint career PSU banker Partha Pratim Sengupta as MD & CEO of the bank for a period of three years.
Additionally, the bank, on the same day, announced that as per the audit, NCGTC will pay Rs 314.68 crore more to the bank, in addition to the Rs 916 crore it has paid in the first tranche last year. Separately, the bank had also recovered Rs 228 crore from the written-off accounts, which were part of this claim, and it will get to keep this recovered amount in addition to the claim payout from the NCGTC. Hence, the bank will realise a total amount of Rs 543 crore as part of other income in its profit and loss statement.
“With these two key overhangs now behind the company, the focus will be back on its fundamentals. While the near-term delinquency outlook for microfinance is benign, we believe this is already in estimates and its price,” said CLSA in a note on Friday.
Interestingly, Bandhan Bank becomes the second private sector bank where a career PSU banker has been appointed as the MD & CEO, with the first being RBL Bank. “Appointment of a PSU banker as CEO provides some stability to an organization like Bandhan, which has witnessed exits in the past year. The performance of microfinance book remains a key monitorable,” said Macquarie Research in a note.
According to the report, in the case of RBL Bank, following the appointment of R Subramaniakumar as the MD & CEO in 2022, its gross non-performing assets (NPAs) declined by 103 basis points (bps) in the next nine months. Further, over July 2022 to March 2023, the bank’s share price increased by 70 per cent.
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“We feel that the appointment is a good balance of bringing someone with experience of a large bank with leadership skills and familiarity of working in core geographies of Bandhan Bank. At present, he is 62 years old and private bank CEOs can remain in office till 70 years,” said Jeffries in its note.
According to JM Financial, while the amount approved by NCGTC is lesser than the initial claims, the closure of the pending issues, and the fact that these have been approved after a forensic audit, is a heartening outcome given concerns on processes that had emerged, which to a large extent have now been put to rest. The report said that clarity on leadership should get the focus back on the bank’s fundamentals and strategic direction to be undertaken going ahead.
“While microfinance as a space remains under asset quality pressure, we believe that Bandhan Bank has grown meaningfully slower than the rest of the industry in this cycle, which should mitigate incremental stress,” it further said.
According to Axis Finance, Sengupta’s experience during his tenure at SBI Kolkata circle will prove beneficial for Bandhan Bank. However, they are awaiting visibility of future strategy for the bank and further changes in senior leadership, if any.
“The bank appointed two executive directors — Ratan Kumar Kesh in Mar 2023 and Rajinder Kumar Babbar in Jan 2024. It has recognized a lot of asset quality stress post-Covid, which has suppressed growth and profitability. We need to be sure that all the legacy issues have been recognized and provided for,” the report said.