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Leadership clarity and CGFMU outcomes are positives

Bandhan Bank today announced that RBI has approved the appointment of Mr. Partha Pratim Sengupta as MD&CEO of the bank for a period of 3 years. He is expected to take charge before 10th November, 2024. Mr. Sengupta was earlier MD&CEO of Indian Overseas Bank until December 2022. Mr. Sengupta has also served as Deputy Managing Director and Chief Credit Officer of State Bank of India earlier. He was also the Chairman of the Corporate Centre Credit Committee, the highest sanctioning committee of the bank just below the board. A brief profile of Mr. Sengupta is given here.

* We believe the appointment brings clarity on leadership at Bandhan Bank which in turn removes a critical overhang. Mr. Sengupta’s career experience in credit across retail and corporate banking should help Bandhan Bank, where credit performance has been challenging over the past few years. With this, we believe that managing transition at Bandhan Bank is now largely complete (2 Executive Directors and CFO were appointed over last 18months).

* Additionally, Bandhan Bank also announced the outcome of the forensic audit under the claims made under CGFMU and ECLGS schemes during Covid19. As per the outcome of the total claims of INR22.12bn (of which the bank had already received INR9.16bn earlier), the NCGTC has allowed claims of INR12.31bn, which results into residual claim that has been approved at INR3.14bn. In addition, the bank has recoveries worth INR2.28bn on this portfolio which the bank holds on its balance sheet. As a result, the bank will account for Other Income through these events worth INR5.43bn in 2Q25 (38% of 2QFY25e PBT). In addition, NCGTC has allowed a fresh claim worth INR3.47bn to be submitted under ECLGS for consideration.

* We believe while the amount approved by NCGTC is lesser than the initial claims, the closure of the pending issues and the fact that these have been approved post a forensic audit is a heartening outcome given concerns on processes that had emerged, which to a large extent have now been put to rest.

* Clarity on leadership should get the focus back on the bank’s fundamentals and strategic direction to be undertaken going ahead. While microfinance as a space remains under asset quality pressure, we believe that Bandhan Bank has grown meaningfully slower than rest of the industry in this cycle which should mitigate incremental stress. We will review our estimates post 2QFY25 results. The stock currently trades at inexpensive valuations of 1.0x FY26e P/BV and offers attractive risk-reward in our view. Maintain BUY with a TP of INR 260.

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