Mumbai: Shares of Bandhan Bank Ltd hit their lower circuit of 20% in their biggest single-day decline since listing on Monday after the Reserve Bank of India barred the lender from opening branches without its approval and ordered the freezing of the salary of its CEO Chandra Shekhar Ghosh due to failure to meet shareholding rules. The stock touched a record low of ₹ 451.20 on the BSE, down 20% from its previous close. This eroded nearly $2 billion of the bank’s market value. The Sensex was trading 0.39% down at 36,086.92.
The move follows the private lender’s failure to meet the RBI’s banking licence guidelines, which require the bank’s promoter, Bandhan Financial Holdings Ltd, to reduce its stake from 82% to 40% within three years of commencing business. The deadline for Bandhan Bank was 23 August. Thereafter, bank promoters are required to reduce their shareholding to 20% and 15% within 10 years and 12 years, respectively. Bandhan Bank has communicated that it is taking steps to comply with the licence condition on shareholding.
Bandhan Bank has 937 branches and 2,764 doorstep service centres. According to the management, the bank handles 3,000 customers per branch, which is lower than other commercial banks, which cater to 20,000 to 25,000 customers per branch.
“There is huge scope for improvement in efficiency. Restrictions on opening new branches are not seen having a substantial impact on (Bandhan Bank’s) balance sheet growth. Hence, we are not altering our growth estimates," said ICICI Direct in a 1 October note.
Bandhan Bank in a conference call with analysts on Saturday said it was exploring inorganic opportunities to reduce the promoters’ stake. The bank also said that it was evaluating starting non-banking businesses at the non-operating financial holding company level.
“Any stake dilution, via fresh issue or stake sale by NoFHC directly to bring down the stake can be highly EPS and RoE dilutive," ICICI Direct added.
Kotak Mahindra Bank fell over 12%, its biggest fall in nine years to ₹ 1,002.30 after analysts feared similar action after the bank failed to reduce its promoter holding last month. This drop erased nearly $2.47 billion market cap of the bank.
Kotak Mahindra Bank has to pare its promoter stake to less than 20% in the next three months. Uday Kotak, vice-chairman and managing director of Kotak Bank, holds a 30.03% stake in the bank.
In August, the RBI rejected Kotak Bank’s proposal to issue non-convertible preference shares to reduce the promoter holding. Earlier, Kotak Bank had said that was planning to raise as much as ₹ 500 crore by issuing non-convertible perpetual non-cumulative preference shares to dilute the promoter shareholding.
The RBI had mandated the Kotak Bank to reduce its promoter shareholding to 20% of the paid-up capital by 31 December 2018, and 15% by 31 March 2020.