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RBI appoints Additional Director to the board of the bank

Bandhan Bank has announced that RBI has appointed Shri Arun Kumar Singh as an additional director (exercise of powers conferred under Section 36AB of the Banking Regulation Act, 1949) to the Board of Directors of the bank for a period of 1 year beginning June 24th, 2024. In our view, as the bank undergoes leadership transition (current MD&CEO Mr. Ghosh's term ends in July 2024 and board is yet to finalize potential candidates for the MD&CEO position), this move should see a smooth functioning especially in light of the fact the "relatively new" management team (2 Executive Directors have joined post March2023 and CFO in Feb, 2024) at the helm.

Valuation and view:

We do not think this should result into renewed worries on asset quality outcomes for the bank. However, we still await the outcome of the CGFMU forensic audit. While investors will remain in wait and watch mode until clarity on the new CEO emerges. In past instances of RBI appointing additional directors (Exhibit 1), experience suggests that RBI directors have exited their positions even prior to completion of the term when leadership transition has been achieved or desired stability at the bank has been achieved. Also, in Bandhan’s case the appointment is for a period of 1 year (vs 2 years in case of other banks). Hence, we do not view the current event necessarily as a negative development and would closely monitor delivery on asset quality and look forward to update on CGFMU outcome and MD&CEO appointment. Current valuations (1.1x FY26E P/BV) remain attractive in our view. Maintain BUY with a TP of 260

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