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Risk-reward turning favourable; retain

Bandhan Bank saw sharp correction post 2Q results, due to spike in NPAs (mainly from MFI), delay in CGFMU recovery, sub-par industry growth and management saga. But of recent, the stock has seen an upmove (+10%) mainly owing to the recent newsflow around the bank’s plan to sell distressed home loans (of up to Rs7.8bn) to ARC (mainly acquired from Gruh Fin) which should lead to NPA reduction, as & when the sale is concluded. Bank expects CGFMU recovery by end-Dec/early-Jan – once the audit process is complete, while the KMP, incl. the ED/CFO of the marquee bank, should mostly join around the same time. Bank highlights that impact of the recent RBI guidelines on increasing RWA on unsecured loans will be only 25bps on CET-1. With asset quality and mgmt issues set to gradually resolve, we expect Bank to participate in the MFI growth story in 2HFY24. Valuations are reasonable, with P/ABV at 1.5x/1.2x FY25E/FY26E, with bank set to deliver healthy RoA/RoE of 2.4-2.5%/19-20%; retain BUY on favorable risk-reward; TP: Rs290/sh (on 1.7x Sep-25 ABV).

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