Bandhan Bank’s Resilient Performance Amid MFI Recovery.Bandhan Bank’s resilient performance amid MFI recovery has caught the attention of foreign brokerage CLSA. The firm noted that nearly the entire top management of Bandhan Bank Ltd is new, which has contributed to its strong positioning in the current microfinance landscape. CLSA believes that Bandhan Bank is outperforming its peers during this MFI cycle by focusing on secured lending and does not anticipate any need for additional capital.
Positive Outlook for Bandhan Bank
CLSA has maintained its estimates and target price for Bandhan Bank while upgrading its recommendation from O-PF to HC-OPF. This change follows a significant 20 percent correction in the stock over the past three months. They project a 65 percent upside potential, even at a modest target multiple of 1.2 times. The brokerage expresses confidence that the stock will rebound as the market conditions improve.
The Indian microfinance sector is expected to transition from challenging conditions to recovery over the next year or two. CLSA indicates that there are early signs of improved collection efficiency. If this trend continues, it should lead to better asset quality with a lag of one quarter. Bandhan Bank is well-positioned to capitalize on this recovery, with its asset quality performance surpassing that of its competitors.
Management Changes and Strategic Initiatives
The management team at Bandhan Bank has undergone significant changes, with key leaders joining in the past 12 to 24 months. The Managing Director and CEO took the helm in November 2024, while two Executive Directors joined in 2023 and 2024. Furthermore, the CFO and heads of various departments, including microfinance and corporate banking, are all relatively new. These changes have been met with optimism, as CLSA does not foresee any risks related to ‘kitchen-sinking.’
Additionally, Bandhan Bank has received a clean audit report for its CGFMU scheme claims, following an extensive review of Rs 20,000 crore of its loans by Ernst & Young. This clean chit bolsters the bank’s credibility and reassures investors about its financial health.
Looking Ahead
As Bandhan Bank continues to enhance its technology and tighten underwriting processes, the overall MFI asset quality cycle is expected to be shorter than previous crises, such as the Covid pandemic. CLSA notes that borrower incomes remain stable, further contributing to a favorable outlook. The bank’s MFI slippage ratio of 8 percent in Q3FY24 is significantly better than that of its peers, and it has one of the lowest proportions of borrowers with multiple lenders.
While there are concerns regarding the MFI market in Karnataka, it is worth noting that this region accounts for less than 1% of Bandhan’s MFI portfolio. For more insights into Bandhan Bank’s operations and strategies, consider visiting The Hans Bharat.
For more detailed information about Bandhan Bank, you can also check out the Bandhan Bank.
