Shares of Bandhan Bank surged 7 per cent to Rs 337.95 on the BSE in intra-day trade on Monday after the Assam government on Friday inked an agreement with microfinance institutions (MFIs) to regularise stressed borrowers and repay the entire loans of highly stressed borrowers.
Also, as an incentive to good borrowers who did not default, the government will repay for each account Rs 25,000, or the loan amount, whichever is lower, to the MFIs. The total cost for the government will be a maximum of Rs 8,250 crore. The agreement was inked with Micro Finance Institutions Network (MFIN), the Business Standard reported. CLICK HERE TO READ FULL REPORT
Brokerage firm ICICI Securities opines that this is positive for micro lenders and especially Bandhan Bank as recoveries are now assured by the state.
In the January-March quarter (Q4FY21), Bandhan Bank’s asset quality witnessed significant deterioration with pro-forma Q4 slippages/ write-offs at 11 per cent/10 per cent (annualised), leading to >200bps decline in net interest margin (NIM).
Amid concerns around the asset quality due to waiver announcements in Assam and elections in Assam/West Bengal, the bank has reported slightly better overall collections at around 96 per cent (EEB-Microfinance at 95 per cent vs. 90 per cent in Jan’20 − after slip down in Assam − and 92 per cent in Dec’20 in value terms). We like Bandhan’s strategy to diversify the asset portfolio away from MFI (product as well as geography-wise) in the wake of rising adverse asset quality events while creating strong provisioning/capital buffers, analysts at Emkay Global Financial Services said in Q4FY21 result update.