The Prabhadevi Branch of Bandhan Bank. (Photographer: Anirudh Saligrama/BloombergQuint)

Bandhan Bank May Look At Acquisitions To Meet Promoter Shareholding Norms

Bandhan Bank Ltd. said its promoters will look at various options, including acquisitions, to bring down shareholding in line with the Reserve Bank of India’s norms after the central bank placed restrictions on its operations.

The lender’s management, in an analyst call, cited a SEBI-mandated lock-in on secondary sale of promoter shares for one year after an initial public offering as one reason for its inability to bring down promoter holding below 40 percent.

The microlender-turned-universal bank, which started operations in 2014, had to meet that requirement within three years of starting business. As a result, the RBI yesterday stopped it from opening new branches unless it seeks the regulator’s approval each time and froze the remuneration to Managing Director and Chief Executive Officer Chandra Shekhar Ghosh.

Among the options that lie before the bank include inorganic opportunities that would dilute promoter shareholding, the management told analysts on the call today. It, however, declined to comment on any change in the holding company structure or redefining the promoter entities. That depends on the regulator, it said, adding the company will not seek exemption from the RBI but rather focus on complying with its requirements.

The bank management added that it does not expect any disruption to normal business due to the restrictions placed by the RBI. Bandhan Bank had planned to open 1,000 branches by March next year and already had 937 as of June-end. The current count, the management said, is adequate to take care of growth for the next two to three years.

The lender planned to go slow on expansion after reaching 1,000 branches, which the management felt was adequate for now. Hence, the bank does not foresee challenges to its regular pace of growth.

Analysts’ Take

JPMorgan believes the RBI directive should not be a drag on Bandhan Bank’s operating growth in the near term as the bank was largely done with its near-term branch expansion target. However, the stake sell downs could be a technical overhang on both Kotak and Bandhan’s share prices near term, the brokerage said in a note. Meanwhile, it has retained its ‘Neutral’ rating and price target of Rs 670 on the stock.

Homegrown brokerage ICICI Securities reduced its target multiple on the stock from 6 times earlier to 4.7 times FY21E book. It said the stake sale may be highly EPS and RoE dilutive. The brokerage has reduced its price target from Rs 825 to Rs 650 but has retained its Buy rating citing robust growth, healthy margins and low cost to income. “In the short-term, the stock could hover at a corrected level until there is clarity from management. We continue to remain positive and recommend gradually accumulating as the decline settles," analyst Kajal Gandhi wrote in a note.

Also read: RBI Punishes Bandhan Bank And Its Promoter