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Explained: Why Bandhan Bank share rose 8% today

The stock ended 7.91 per cent higher at Rs 341.10 against the previous close of Rs 316.10. Market cap of the firm rose to Rs 54,938.06 crore on BSE

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Share of Bandhan Bank rose 8 per cent today after the Assam government announced relief as well as incentives for Micro Finance Institutions (MFI) loans.

The stock ended 7.91 per cent higher at Rs 341.10 against the previous close of Rs 316.10. Market cap of the firm rose to Rs 54,938.06 crore on BSE.

It has gained 14 per cent in the last one month. The share stands higher than 5 day, 10 day, 20 day, 50 day, 100 day, and 200 day moving averages.

ICICI Securities said that Bandhan Bank witnessed a couple of favorable developments in the week gone by.

Firstly, RBI's consultative paper on harmonisation of regulations for MFIs subsides the concerns of the bank being subjected to the maximum number of lenders or lending rate cap.

Secondly, the Assam government's decision of providing relief as well as an incentive for MFI loans will partially address one of the key concerns of its elevated stress pool in Assam (14% in 90+dpd and 11% in 31-90 dpd bucket for Assam as of Mar '21).

"Bandhan Bank, with highest market share in Assam (>55% market share with Rs70bn exposure), is naturally bound to benefit from the scheme designed in a way to retain credit culture and promote responsible repayment behaviour," it noted.

"However, it is difficult to quantify the extent of impact as borrower indebtedness of only up to Rs125k is eligible and Bandhan is actively graduating borrower from MFI to individual loans," the brokerage house added.

Credit Suisse has upgraded the stock to 'outperform' and raised the target price to Rs 390 per share.

"The Assam government's MFI bailout package will aid recoveries and credit costs. However, potential stress from the second wave will keep the slippages elevated," the brokerage house noted.

However, CLSA has maintained an 'underperform' call on the stock with the target price at Rs 300 per share.

"Assam government's MFI package should provide significant relief and that it will be credit positive for the firm's Assam portfolio but the impact of the second wave of COVID-19 could be large" the brokerage firm noted.

Assam government has been holding continued discussions with MFIs, following which the outstanding loan amount has been brought down to Rs 8,250 crore from Rs 12,500 crore and this will benefit 22 lakh poor and deprived women of the state, Himanta Biswa Sarma, the chief minister of Assam said at a press conference on Friday.

"The outstanding loan has come down as MFIs had flouted the norms set by the Reserve Bank of India (RBI) and these include giving a loan of over Rs 1.25 lakh to one group or giving more than one loans to one person or group," he added.