Bandhan Bank plunges to all-time low as RBI tightens scrutiny

By Krishna V Kurup

(Reuters) - Bandhan Bank Ltd shares plunged to their lowest since March debut on Monday after the central bank withdrew permission to open new branches and froze chief executive's salary, as the banking regulator tightens its grip over the country's crisis-hit financial sector.

The Reserve Bank of India (RBI) clamped down on the lender, majority owned by Bandhan Financial Holdings Ltd, a so-called non-banking financial company (NBFC), for failing to bring down its main shareholder's stake to below 40 percent.

India's financial sector is under scrutiny after a series of defaults by one of the biggest non-banking financial firms in the sector raised fears of a credit crunch that roiled financial markets in the past week.

The RBI is becoming stricter which is good for the banking system, else later it may become a bigger scam, said AK Prabhakar, head of research at IDBI Capital in Mumbai.

"Initially, things may go haywire as people cannot digest too much of regulation," he said.

Late last month, the RBI curtailed Yes Bank Ltd CEO Rana Kapoor's term, without giving a reason. The move, according to market insiders, exemplifies the central bank's increasingly assertive approach in tackling the bad debt problem plaguing India's banking sector.

Indian banks have seen a surge in soured loans that hit a record $150 billion at the end of March and stricter rules enforced by the RBI are expected to have pushed the industry's non-performing loans even higher.

"Wherever RBI has seen divergence, they demanded management to change, for example, Axis Bank," Prabhakar said.

In April, Axis Bank, riddled with bad loans, said its long-time Chief Executive Shikha Sharma would step down, days after the central bank was reported to have expressed concerns about the lender giving her a three-year extension.

"I believe the RBI is doing the right thing. If they would have done this long back, we could have had a better banking regulation and system," analyst Prabhakar said.

Bandhan Bank shares closed down 20 percent at 452.20 rupees.

(Reporting by Sharnya G and Krishna V Kurup in Bengaluru; Editing by Gopakumar Warrier)