Bandhan Bank slips 10% to hit lowest level this year on weak Q2FY23

Analysts believe that though balance sheet restructuring in progress, the operationally weak performance and uncertainty on stressed pool remains an overhang

Shares of Bandhan Bank slipped 10 per cent and hit 10-month low of Rs 244.55 per share in Monday’s intra-day trade after the private sector lender reported a weak operational performance for the quarter ended September 2022 (Q2FY23). The stock traded at its lowest level in calendar year 2022 (CY22).

Furthermore, the private sector lender’s net interest income (NII) was up 13.3 per cent year-on-year (YoY) and declined 12.8 per cent quarter-on-quarter (QoQ) to Rs 2,193 crore, mainly due to fall in margins. Net interest margins (NIMs), meanwhile, declined by 100 bps QoQ to 7 per cent, as yields declined and cost of funds climbed by 20 bps.

Sequentially, provisions doubled to Rs 1,279 crore, and therefore, net profit for the bank was down 76.4 per cent QoQ and 30 per cent YoY to Rs 209 crore. Asset quality, however, improved as GNPA and NNPA ratio declined by 6 bps each on QoQ basis to 7.19 per cent and 1.86 per cent, respectively.

Analysts at ICICI Securities believe that the though balance sheet restructuring in progress, the operationally weak performance and uncertainty on stressed pool remains an overhang.

Besides, the bank reported a PAT of Rs 209 crore in Q2FY23 (63 per cent miss), led by weaker operating performance across key metrics such as NII, other income, and operating expenses, along with higher provisions.

Analysts at Motilal Oswal Financial Services (MOFSL) believe that the loan growth in the near-term will be soft as the management has tightened its underwriting standards.

"The bank reported a weak Q2FY23, with interest reversals adversely impacting NIM, while slippages remain elevated. The SMA overdue in the EEB and MFI portfolio grew to 13.1 per cent from 12.7 per cent in Q1FY23 due to complete dissolution of the restructured portfolio," analysts at MOFSL said.

On the other hand, they remain watchful of asset quality, mainly the high SMA book, particularly in the Assam portfolio, which can keep credit cost elevated.

Analysts have raised their credit cost guidance for FY23 to 3 per cent (+/- 15bp) from 2.5 per cent earlier. Moreover, the brokerage firm has lowered its FY23/FY24 earnings estimate by 18 per cent/11 per cent.