Bandhan Bank CEO retires: Clarifications unlikely to help, de-rating ahead, says Kotak

Bandhan Bank's  MD and CEO CS Ghosh has put in his papers, a few months before the renewal of his tenure. Kotak Institutional Equities said there is an anxiety over the abrupt exit and clarifications are unlikely to help the private lender. Kotak said such abrupt changes are not new to the banking sector -- YES Bank Ltd, RBL Bank Ltd, Ujjivan SFB, and South Indian Bank, are a few examples. It noted that the outcomes in each past situation have been different, and not everything has necessarily been an outcome of poor lending.

The discomforting situation in Bandhan Bank's case, however, has been the timing — with the approval for renewal pending only with the RBI— and, perhaps, better succession planning would have been an acceptable outcome, it said.

"The bank is yet to fully overcome the asset-quality issues post Covid, and the recent independent work initiated by CGFMU on the claims made by the bank is yet to be completed," Kotak said.

In his letter, Ghosh said he has indicated an interest in working in a broader role at the group level. Kotak said the development is an unexpected one, and it has probably come in at an inopportune time considering that the bank is yet to fully emerge from challenges on asset quality and stability at the senior management level.

"We have a positive view about the bank, but the current development is most likely to de-rate the bank from its current levels," Kotak said.

Kotak said investors are now most likely to wait for more than a few quarters to assess the situation, review the new appointment and the subsequent changes that are likely to happen. For now, Kotak has retained its 'BUY' rating on the stock.

The brokerage has a fair value of Rs 270 on the stock.