The bank’s penetration in East, North-East, and Central India positions it well to take advantage of growth in underdeveloped regions.
Bandhan Bank’s low CD ratio helped it ramp-up deposits quickly since converting into a bank in 2015, gaining market share from PSU banks.
Private sector lender Bandhan Bank has seen its share jump 27% in the last 11 days of trading. On Friday the shares of the bank were continuing to tread on the same path, moving up over 2% to trade at Rs 326 per share. With this global brokerage and research firm, CLSA has initiated coverage of the bank with a ‘Buy’ rating and a target price of Rs 400 apiece based on 2.9x Sep-22CL book value. In a recent report, CLSA said that Bandhan Bank is a unique Indian financial services play that focuses on underpenetrated products like microfinance, affordable housing and MSMEs, primarily in underpenetrated geographies.
The bank’s penetration in East, North-East, and Central India positions it well to take advantage of growth in underdeveloped regions. “Bandhan Bank, in our view, had successfully built businesses (both MFI and deposits) in this region, giving credibility to management’s execution capabilities and its superior understanding of banking requirements in this region,” CLSA said. Bandhan Bank’s low CD ratio helped it ramp-up deposits quickly since converting into a bank in 2015, gaining market share from PSU banks. The per-capita net state domestic product of Central India, East India, and North-East India is the lowest. CLSA believes that this strategy would help the bank as these areas are underpenetrated and underdeveloped.
Bandhan Bank has a competitive advantage as its focus products are high yielding, operationally intensive and smaller in ticket size. “Microfinance is the fastest-growing loan segment in India in the past decade. This MFI lending is for poor women to support their livelihoods and create additional income sources,” the report said. The brokerage firm said that the penetration of MFI lending is only 34%, thus giving Bandhan Bank a huge market to cover. Large banks tend to stay away from microfinance due to its small ticket size loans, unsecured nature and because it is highly operationally intensive. Bandhan Bank, in the previous fiscal year, had a 36% stake in the MFI industry, largest in the sector.
After having started in 2001 under an NGO, Bandhan Bank established itself as an NBFC MFI. It acquired a banking license in 2015. The promoters of the bank hold a 40% stake after recently having trimmed it down by 20% to stay in line with RBI guidelines. The banking regulator mandates Bandhan Bank’s promoters to trim stake to 15% by 2027.
“We believe Bandhan Bank’s presence in underpenetrated regions and loan products provide significant growth opportunities,” the report said. The lender has also scaled up its deposits at a faster pace than peers. Bandhan Bank took just 12 quarters to ramp up its Casa ratio from 21% to 40% vs 33/40 quarters taken by IndusInd Bank/Kotak Bank, CLSA noted. “Bandhan Bank FY22CL valuations are at 6-13% discount to large retail private banks viz. HDFC Bank and Kotak Bank,” it added. However, 65% of the book of Bandhan Bank is unsecured and hence the risk remains high. Additionally, concentration of the majority of the deposits to just 4 states is also seen as a risk for the lender.