Bandhan Bank shares are up over 7% today. Why Jefferies has a buy label

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Bandhan Bank’s shares surged over 7% 283 apiece on the BSE in Tuesday’s early deals after the Reserve Bank of India (RBI) relaxed microfinance lending standards, which Jefferies believes are most positive for NBFC-MFIs and mildly so for banks like Bandhan Bank are. The standards will be implemented from April 1, 2022.

“RBI microcredit norms liberalize rules by lifting the spread cap for NBFC-MFIs to 10% earlier; Raising the household income limit for taking out MFI loans 125k-200k too 300,000 per year; & loosening credit mix norms for NBFCs. Borrower leverage is capped by capping EMI at 50% of income and lenders need to properly assess income/leverage,” the global brokerage firm said in a statement.

Jefferies has a buy tag on shares of Bandhan Bank with a target price of 380. Risks, however, include further deterioration in revenues due to the Omicron wave, adverse provisions of RBI’s forthcoming harmonized microcredit regulatory framework and a weak economic recovery, as evidenced by brokerage.

RBI’s revised microfinance lending rules focus on harmonizing norms for lenders and deregulating norms for NBFC-MFIs. These changes are more liberal than the draft that was released in June 2021, the brokerage office stressed.

“The revised framework is most positive for NBFC-MFIs as it aims to have universal standards for all businesses. Some major NBFC MFIs listed are CreditAccess Grameen, Spandana Sphoorty and Satin Credit Care Network. The regulations are slightly positive for banks like Bandhan and even small financial banks,” Jefferies added.

In the future, lenders can have board-approved MFI loan pricing policies and the 10% cap on spreads for MFIs will be removed. It also removes banks’ previous overhang on such a cap, she added.

The views and recommendations made above are those of individual analysts or brokerage firms and not Mint.

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