Bear Trap! Why Bandhan Bank shares hit 3-year low

Shares of Bandhan Bank declined for the third consecutive session on Tuesday to hit a near 3-year low and were the worst hit on the Nifty Bank index. In 3 sessions, the stock has lost more than 14%.

The fall in trade today was backed by significant volumes of more than 17 million shares, more than 2 times the 6-month daily average trading volume of over 8 million shares.

Year-to-date, the stock has net lost 21% compared to the 8% loss in the Nifty Bank index.

The reason for the sharp fall in the stock couldn’t be ascertained at the time of filing this report. However, the private sector lender has been struggling with rising bad loans at a time when most of its peers, including the public sector ones, have shown sharp improvement in asset quality.

Last week, the bank said it received a binding bid of Rs 740 crore from an asset reconstruction company for non-performing loans with an outstanding of Rs 4,930 crore.

Its board has given consent to transfer NPAs with an outstanding of Rs 2,614 crore to the ARC.

During the quarter ended December, the bank’s provision surged over 91% on year to Rs 1,541 crore. As a result, net profit dropped 66% to Rs 291 crore.Bandhan Bank’s gross non-performing asset ratio was 7.15% as of December 31, compared to 7.19% a quarter ago, and 10.81% a year ago.

In its recent report, Nuvama Institutional Equities said that the earnings and valuation have bottomed out, and one could see them rebounding in FY24 on normalising credit cost, higher NIM, and asset growth.

However, it added that the long-term earnings visibility from the business transformation is low for the bank as it moves away from its core competency to intensely competitive segments.

As a result, the brokerage has a “hold” rating on the stock with a price target of Rs 265.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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