Bandhan Bank shares dive 4% after ICRA downgrades credit rating to 'AA-'

Shares of Bandhan Bank dipped as much as 3.55 per cent at Rs 188.45 a piece intraday on BSE. Bandhan Bank share price today slipped after credit rating agency ICRA downgraded the non convertible debentures (NCD) of Bandhan Bank to ‘AA-’ from AA and revised outlook to 'Stable' from 'Negative'.

ICRA, however, reaffirmed its ‘A1+’ rating for Bandhan Bank’s certificate of deposits. 

In its rationale for the above ratings, ICRA said that the downgrade in the long-term ratings of Bandhan Bank reflects the sustained weakness in the emerging entrepreneur business (EEB) portfolio, which is likely to continue,given the concerns regarding borrower-level overleveraging in  the  sector.

ICRA noted that the bank’s gross stresspool (SMA1-1 & 2 in  EEB  portfolio  and  overall  gross non-performing advances) has declined,though at a slower-than-anticipated pace and driven by significant write-offs in FY2023 and FY2024,  leading  to  high  credit  costs.

Consequently, its profitability  has  remained  subpar  in  relation  to the pre-Covid-19 pandemic levels. Bandhan’s capital cushions have also declined as a result of bank’s interpretation of RBI’s notification leading to increase in the risk weights on certain exposures to 125 per cent, which was previously calculated at a risk weight of 75 per cent.

“In addition to affecting the capital  cushions,  this may  pose  challenges  for  growth  or  absorbing unexpected  stress  from the asset  quality if internal capital  generation  remains  weak. In addition, the bank’s profitability gets impacted by the absence  of  income  from sale of priority sector lending certificates (PSLC) and continuing balances in the low-yielding Rural Infrastructure Development Fund  (RIDF)  deposits,  though the  same  would  mature  in  the  coming  years,” ICRA said in a note. 

Share price history

Bandhan Bank’s share price has slipped 25.6 per cent over the last one year, compared to BSE Sensex’s rise of 26.8 per cent.

The company has a total market capitalization of Rs 30,407.08 crore. Its shares are trading at price to earnings valuation of 12.24  times, while having an earning per share of Rs 15.97.

At 2:08 PM, the stock price of the company fell 3.38 per cent to Rs 188.80 a piece on the BSE. By comparison, the BSE’s Sensex was down 2.14 per cent or 1,800 points to 82,466 level.