Bandhan Bank falls 2%, nears record low on weak Q3 business update

In Q3FY25, Bandhan Bank's collection efficiency continued to deteriorate by approximately 60 bps quarter-on-quarter to 97.6 per cent from 98.2 per cent in Q2FY25

Shares of Bandhan Bank hit a 52-week low of Rs 153.85, down 2.4 per cent on the BSE in Tuesday’s intra-day trade after the company reported a weak performance for the quarter ended December 2024 (Q3FY25). 

 

The stock price of the private sector lender has fallen below its previous low of Rs 157.10 that it had touched on December 20, 2024. It had hit a record low of Rs 152.35 on March 25, 2020. With today’s fall, the market price of Bandhan Bank has tanked 42 per cent from its 52-week high level of Rs 263 that it touched on January 5, 2024. The stock had hit an all-time high of Rs 741 on August 9, 2018.

 

 

In Q3FY25, Bandhan Bank’s collection efficiency continued to deteriorate by approximately 60 bps quarter-on-quarter (QoQ) to 97.6 per cent from 98.2 per cent in Q2FY25, warranting a close monitoring of its asset quality and thus credit costs.

 

While growth in advances seem limited (15 per cent year-on-year (YoY) and 2 per cent QoQ to Rs 1.3 trillion) owing to challenges in micro-finance segment, sequential de-growth in CASA and thus deposits (20.1 per cent YoY and -1.1 per cent QoQ to Rs 1.4 trillion) remains, reflecting challenges in liabilities mobilisation, ICICI Securities said in a note.

 

Over the medium-term, Bandhan’s asset quality will remain a monitorable owing to sector-level issues like overleveraging, elevated pricing, and operational disturbances plaguing its key market, according to analysts.

 

Meanwhile, Bandhan Bank, in the September quarter (Q2FY25) earnings call on October 25, said that the last few quarters have witnessed a relatively tight liquidity environment and an extremely competitive landscape for bank deposits. Further, the microfinance sector has been facing headwinds and witnessing elevated risk in portfolio quality. Whilst the microfinance sector continues to face headwinds, the company has been proactive and has taken steps over the last 18+ months to address the business risks.

 

Over the first half of fiscal 2025, due to issues like overleveraging and other operational disturbances plaguing the microfinance segment, the bank’s gross and net non-performing assets (GNPA and NNPA) rose to 4.7 per cent and 1.3 per cent respectively, as on September 30, 2024, from 3.8 per cent and 1.1 per cent, respectively as on March 31, 2024. The bank's management expects slippages to stay elevated in Q3, before cooling down in Q4. 

 

Apart from measures like tightening the eligibility criteria for refinancing, adhering to stricter credit scores, etc. investments in technology have been made for higher efficiency and oversight. These corrective measures are expected to benefit the bank’s operations in the long run. In the near- to medium-term, however, external challenges plaguing the unsecured asset classes, particularly microfinance segment, remain a monitorable, CRISIL Ratings said in rationale dated December 13, 2024.

 

Recently, due to borrower overleveraging and ground-level operational challenges across the industry following elections and intense heat wave coupled with ‘Karza mukt bharat abhiyan’ campaign, there has been a spillover effect of the stress in certain geographies, thereby putting pressure on collections. This segment of borrowers continues to be subjected to idiosyncratic risks on account of socio-political factors. 

 

Historically, the microfinance sector has witnessed major disruptive events, including the Andhra crisis in 2010, demonetisation in 2016 and more recently, the pandemic in March 2020. In addition, the sector has faced issues of varying intensity in several geographies. These events revealed the vulnerability of the borrower segment to regulatory and legislative risks. These events triggered a chain of events that adversely affected the business models of MFIs by impairing their growth, asset quality, profitability and solvency, the ratings agency said.