Bandhan Bank stock was trading almost flat on Monday after opening the trading session at Rs 190 and touched low of Rs 187.15 at the time of publication of this report. The stock touched an intraday high of Rs 192.35. The stock looks good for short to medium term and can offer decent returns, considering strong performance of the bank in quarter ending September 30, 2024.

Bandhan Bank’s Q2 results reveal impressive growth in both loans and deposits, but declining CASA (Current Account Savings Account) and loan-to-deposit ratios raise some red flags for investors. While brokerages like Jefferies remain optimistic due to potential improvements in CGFMU recovery and an upcoming CEO change, Nomura takes a more cautious stance, issuing a ‘reduce’ call. The bank's future trajectory will depend heavily on asset quality, leadership transition, and recovery efforts. Investors need to keep a close eye on these variables to assess the bank’s long-term performance.

Strong Growth in Loans and Advances

Loans grew by 21.4% year-on-year:
Bandhan Bank reported a significant increase in its loans and advances portfolio, growing by 21.4% year-on-year to ₹1.31 lakh crore in Q2 FY24, up from ₹1.07 lakh crore during the same period in the previous year. This robust growth reflects the bank’s ongoing efforts to expand its lending business, particularly in a competitive market.

Retail Deposits See Healthy Growth, CASA Ratio Declines

Retail deposits grew by 16.4% year-on-year:
The bank saw a 16.4% growth in retail deposits, including CASA, reaching ₹96,603 crore. This rise in retail deposits underscores the bank’s ability to attract customers despite challenging market conditions.

CASA ratio drops to 33.2%:
However, the CASA ratio, a critical indicator of a bank’s low-cost deposits, declined to 33.2%, down from 38.5% a year ago. This signals a shift in the bank’s deposit composition towards more costly funding sources, which may impact profitability.

Bulk Deposits Surge by 58%

Bulk deposits contribute to overall deposit growth:
Bulk deposits saw an impressive year-on-year growth of 58%, reaching ₹45,908 crore. This significant rise in bulk deposits has played a major role in boosting Bandhan Bank's total deposits. However, the reliance on bulk deposits, which generally carry higher interest rates, could weigh on the bank's cost of funds.

Jefferies' Positive Outlook

Jefferies maintains a ‘buy’ rating:
Jefferies remains optimistic about Bandhan Bank’s prospects, maintaining a ‘buy’ rating with a target price of ₹240. The brokerage sees potential triggers for the stock in the coming months, including the following factors:

CGFMU recovery could improve the bank’s position:
The Credit Guarantee Fund for Micro Units (CGFMU) remains an area of focus, with positive clarity on recovery from this fund potentially boosting the bank’s financial health.

CEO transition as a positive catalyst:
The forthcoming appointment of a new CEO to replace Ratan Kumar Kesh is seen as an opportunity to bring strategic realignment and potentially instill greater market confidence.

Nomura’s Cautious Approach

Nomura issues a ‘reduce’ rating:
In contrast, Nomura takes a more conservative view, issuing a ‘reduce’ rating on the stock, with a target price of ₹170. The brokerage highlights key areas of concern, including:

Asset quality remains a critical factor:
Nomura emphasizes the need for Bandhan Bank to maintain strong asset quality amidst growing advances. Any deterioration in asset quality could negatively affect the bank’s performance and investor sentiment.

Leadership Transition

New CEO to steer future strategy:
Bandhan Bank is undergoing a leadership transition, with a new CEO set to replace Ratan Kumar Kesh. This change is expected to provide fresh strategic direction for the bank, but also introduces an element of uncertainty that investors will need to consider.

Conclusion: Monitoring Key Factors for Future Growth

Bandhan Bank's Q2 performance shows considerable growth in loans and deposits, but investors should remain cautious due to the decline in the CASA ratio and the looming CEO change. The bank’s future success will depend on its ability to maintain asset quality, recover from the CGFMU, and navigate leadership transitions effectively. As brokerages remain split on their recommendations, with Jefferies seeing positive catalysts and Nomura urging caution, investors must keep a close eye on these developments to make informed decisions.