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Bandhan Bank: Bandhan steps out to reassure Street after Ambit thumbs down

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Bandhan Bank, which grew out of India’s biggest success story in microfinance, on Monday said that its liquidity and growth in deposits and advances remained healthy, seeking to calm investors and depositors after a Mumbai brokerage slashed the lender’s share price target by more than 80% from an earlier estimate in light of the stress in recoveries.

“Deposits from micro-banking customers continue to be strong and stable despite three weeks of lockdown,” Bandhan said in a regulatory filing with stock exchanges.

Deposits and advances climbed 4% and 10%, respectively, between January and March at Bandhan, which now has excess liquidity to the tune of Rs 8,500 crore.

Depositors in general are concerned about the safety of their money, especially after a clutch of lenders had to come together to bail out Yes Bank. Another private-sector lender, IndusInd Bank, saw its deposit base shrink to Rs 2.02 lakh crore at the end of March against Rs 2.17 lakh crore three months before.

Year on year, Bandhan’s deposits climbed 32% to Rs 57,073 crore and advances climbed 60% to Rs 71,825 crore. Bandhan’s share of current account and savings account (CASA) deposits was at 37%, provisional numbers showed.

Yet, the Covid-19-induced lockdown and the resultant business disruption is causing concern among analysts, especially because Bandhan has a significant exposure to what are described as micro loans. “Even its corporate loan portfolio (5% of its loan book) is entirely exposed to MFIs/NBFCs, which are most exposed in the current environment,” Ambit Capital analysts Pankaj Agarwal and Ajit Kumar said, arguing in favour of a cut of 84% in the target price.

Ambit analysts said that asset quality pressure would be the most severe for Bandhan along with RBL Bank and IndusInd Bank — due to their higher shares of microfinance / unsecured / commercial vehicle loans.

Some other brokerages were not as pessimistic as Ambit. “We continue to believe that Bandhan Bank is the most resilient franchise within microfinance — no-consumption based lending, no lending to migrant workers. We believe Bandhan, with a 23% tier-1 and strong CASA deposits, will survive this better than any competitor,” Gautam Chhugani, an analyst with Sanford C. Bernstein & Co, said on April 2.

“While the lockdown and restrictions adversely impact microfinance operations, it may be worth watching if the outbreak spares rural areas of India,” said Chhugani.

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