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Bandhan Bank - Sensible to stay away in near term

ICICIdirect Research 31 Oct 2022 DISCLAIMER

What's Buzzing 

The Bandhan Bank stock nosedived ~10% in trade after reporting a weak earnings performance in its Q2FY23 results over the weekend. NIMs declined, provisions doubled, slippages were elevated while a significant jump in cost to income ratio impacted earnings. Higher write-offs spoilt the show leading to PAT of Rs 209 crore, down 76% QoQ. 


Slippage was at an all-time high and the bank wrote-off Rs 3500 crore (almost 4% of loans), its second largest write-off. Despite this, the SMA pool remains unchanged QoQ, implying further high slippages in Q3FY23. Restructured book was at Rs 5800 crore vs. Rs 6150 crore in Q1FY23. NIMs contracted 100 bps QoQ to 7%. 

Our Perspective 

Continued investment in tech, people and process is expected to keep cost elevated. The management is hopeful of regaining traction in H2FY23 with non-MFI book expected to grow at a faster pace in line with strategy to dilute product & geographical concentration. We believe slippages from the restructured book will remain elevated. Though a recovery from Assam relief scheme is expected to control credit cost, overall credit cost guidance increased from 2.5% to ~3% for FY23E. Delayed recoveries may dent earnings momentum in the near term. Balance sheet restructuring is in progress. We expect return ratios to remain subdued. An operationally volatile performance and uncertainty on the stressed pool remain an overhang on the stock.

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