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Shares of private sector lender Bandhan Bank Ltd were in focus on Wednesday, after the lender released the business update for the March-ended quarter of financial year 2022. Decent growth in business momentum and improvement in collection efficiency were among the key highlights.

Loans and advances stood at 1,01,359 crore as of 31 March 2022, up 16% year-on-year (y-o-y) and 15% quarter-on-quarter (q-o-q). Overall collection efficiency ratio (CER) was at 96% in Q4FY22 compared with 93% during October-December. In the micro finance lending segment collection efficiency improved to 95% in Q4FY22.

CASA (Current Account Savings Account) deposits rose 18% y-o-y, however, CASA ratio declined to 41.6% from 45.6% in Q3FY22. According to analysts at Jefferies India Pvt Ltd, the sharp sequential decline of around 400 basis points in CASA ratio was due to high bulk deposits and should normalise in Q1FY23. One basis point is one hundredeth of a percentage point.

Retail deposits stood at 77% of total deposits; in Q3FY22, the proportion of retail deposit was 85%. The lender's total deposits in the March quarter increased 24% y-o-y.

Shares of the bank fell around 2% on the National Stock Exchange in opening deals on Wednesday. Even though the bank's performance was better than earlier during the just concluded quarter, some concerns remain, note analysts.

Analysts at Motilal Oswal Financial Services Ltd point out that improving trends in collection efficiency should continue to moderate credit cost and support earnings for Bandhan Bank. However, movement in the Special Mention Account (SMA) book and performance of the restructured book remains a key monitorable. SMAs are those accounts which could become non performing.

Analysts at Edelweiss Securities Ltd have upgraded the stock's rating from Reduce to Buy. That said, they have cautioned of some downside risks. "Given the impending diversification execution, some red flags around the sector (impact of inflation on underlying borrower base) and inherent volatility in the business model, we believe, the bank tracing back to earlier levels is highly unlikely," said the Edelweiss report on 5 April.

Over the last one year, the Bandhan Bank stock has underperformed sectoral index Nifty Bank by a wide margin. While the lender's shares fell 8%, the index rose nearly 16%. Investors would remember that in Q2FY21, Bandhan Bank reported a significant loss due to accelerated provisioning. Distress in the micro finance lending segment, mainly related to accounts in West Bengal and Assam, soured investors' sentiment towards the stock.

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