Bandhan Bank has been in a sector, MFI, which has seen a lot of negativity since the start of covid. The stock which listed in 2018 is currently trading 40% below its list price and over 50% lower than its all time high. The Q3FY22 GNPAs and NNPAs continued to remain above 10% and had little positivity other than the fact that they had not worsened. Collection efficiency, though, had improved and the bank has been growing well.

Both, Nomura and CLSA upgraded Bandhan Bank with a target price of `340 and `375 a share respectively. Both houses believe that the tough last 3-4 year cycle for the Bank is turning and asset quality is improving with growth coming back. For starters, Q3 GNPA and NNPA were stable. CLSA further expects credit costs to normalize in FY23 and Nomura believes that the Bank will not need any material fresh provisions. In fact, CLSA channel checks seem to suggest that MFI collections are normalizing.

On the growth front, both believe that the MFI business is in a cyclical recovery. CLSA believes that the performance of the restructured book is going to be the key and as that recovery plays out profitability will play out as well. Nomura on the other hand believes that the PPOP and the EPS are going to surprise on the upside.

Outside of this, the RBI has issued new guidelines for MFIs which is set to kick in the next fiscal. Income limits have been increased under the new MFI guidelines. This will mean that income limits have been revised and the MFI lenders will have access to more customers. Further, the interest cap has also been removed which will benefit lenders.

So while CLSA believes that while Bandhan won’t see the valuation levels it saw earlier, it is still a re-rating candidate, Nomura believes that the risk reward has turned favourable for the bank.