Bharat Financial shares fall as much as 6% on bad loan fears

Bharat Financial said it expects overdues to be repaid only in 3-4 months as against the earlier projection of March end


In intraday trade, Bharat Financial shares touched a low of Rs754.25 a share before closing at Rs816.45 in Mumbai
In intraday trade, Bharat Financial shares touched a low of Rs754.25 a share before closing at Rs816.45 in Mumbai

Mumbai: Shares of Bharat Financial Inclusion Ltd on Tuesday fell as much as 6% after the company said in a conference call that 4.5% of its gross loans may turn bad in the fourth quarter.

In intraday trade, the stock touched a low of Rs754.25 a share. The scrip, however, pared early losses as it closed down 1.78% at Rs816.45 in Mumbai while the benchmark index Sensex closed down 0.17%.

The shares moved between the high and low of Rs818.80 and Rs754.25 a share, respectively.

The company informed the investor community that 4.5% of its gross loan portfolio is under the risk of slipping into bad loan in the fourth quarter. The portfolio, with more than eight weeks overdue, stood at Rs383 crore or 4.5% of the total loan book which is higher than 0.2% reported in the third quarter. The company said it expects overdues to be repaid only in 3-4 months as against the earlier projection of March end.

The collection efficiency in November stood at 91%, while in December it was 96.8% and it stood at 95.5% in February, which means 4.5% dues are still not being paid on time despite improved currency circulation, Motilal Oswal said in a note to its investors. The brokerage house has downgraded the stock to “neutral” with a target price of Rs848 a share.

Collections in Uttar Pradesh and Maharashtra states, which contains 60% of its loan portfolio, had dropped after local political leaders misinterpreted the Reserve Bank of India’s 90-day guideline on bad loan classification for a loan waiver scheme. They said around 1,300 centres witnessed zero repayment since demonetisation. It also said that the situation was improving gradually but they were unlikely to witness a V-shaped recovery.

“With slower improvement in delinquent loans, we retain our view of large write-offs in fourth quarter of financial year 2017, which will likely extend to first half of financial year 2018 as well. While higher growth momentum increases our net interest income forecasts, we remain a bit guarded on residual risks in the business,” said brokerage firm Kotak Institutional Equities.

The brokerage firm has retained its “reduce” rating with a price target of Rs730 a share.

Religare Capital said that it regularly highlighted that in unsecured lending business, slippages are concentrated as well as chunky in any given year over a cycle.

“In our view, NBFCs with 100% exposure to microfinance cannot grow perennially at high rates with low credit costs, especially when competition is set to intensify with the emergence of small banks. Our credit costs assumptions remain higher than consensus as we are structurally negative on the sector,” said a Religare report. It maintained its “sell” rating with a target price of Rs550 a share

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