Mumbai: Investors in Bandhan Bank Ltd have lost nearly 42,000 crore over the past two months, following concerns over high promoter stake and its exposure to troubled Infrastructure Leasing & Financial Services Ltd (IL&FS).

Since 9 August, when it closed at a record high of 729, Bandhan Bank has lost nearly 50%, eroding its market value by half from 87,000 crore.

Shares of Bandhan Bank fell 3.21% on Thursday to close at a record low of 380 on the BSE. At this level, it is just 1.33% above its issue price of 375.

In the same period, S&P Bankex, a broad gauge of banking stocks, has fallen 13.4% while the benchmark 30-share Sensex has dropped 11.4%.

The fall in Bandhan Bank’s shares has wiped out nearly all the gains for those who purchased its shares in its initial public offering.

On 10 October, the lender disclosed a 390 crore exposure to IL&FS group, which accounts for only 1% of its total outstanding loans. The management clarified that there is no other investment or non-funded exposure to IL&FS, nor is there any other great exposure.

“Classifying this exposure as an SME loan in its investor presentations comes as quite a negative surprise, as the bank had never expressed any intent to get into wholesale lending before. The problem is not simply the soundness of the decision to lend, which is debatable but the disclosures surrounding it too," said brokerage firm Macquarie Research in a 11 October note.

The brokerage has downgraded the bank to neutral and cut the target price to 40 a share, down 4% from its earlier target of 560.

“(We downgrade) as we build higher credit costs on the IL&FS exposure. Current valuations do not offer enough margin of safety, especially considering uncertainties involved," the note said.

Recently, the Reserve Bank of India (RBI) barred Bandhan Bank from opening new branches and froze the remuneration of its managing director and chief executive officer Chandra Shekhar Ghosh, after it failed to meet rules on promoter shareholding.

“RBI taking away general permission to open branches or freezing MD’s salary shouldn’t hurt business much. However, failure to comply with the RBI’s directives may invite further restrictions, which can hurt the bank’s prospects. That is a bigger worry in our view," said Macquarie Research in a 1 October report.

According to RBI guidelines, Bandhan Bank promoter Bandhan Financial Holdings Ltd must reduce its stake to 40% from 82% within three years of commencing operations. The deadline for Bandhan Bank to do this was 23 August. Thereafter, banks are required to reduce their shareholding to 20% and 15% within 10 years and 12 years, respectively.

The lender has said it is taking necessary steps to comply with licensing conditions and shall continue to engage with the RBI in this regard.

Analysts believe that lowering the stake to 40% is difficult and will require time. The bank earlier said that it is focusing on micro finance, MSME, affordable housing and life/general insurance and non-banking operations.

“Reduction in promoter stake, as per regulatory mandate, can be margin and RoA dilutive. Hence, we maintain our target multiple at 4.7x on FY21E ABV," said ICICI Direct Research in a 11 October report.

Close