Asset quality improved in the March quarter (Q4FY22), gross non-performing assets (NPA) and net NPA ratio fell 435 bps, Bandhan Bank shares rose 8 per cent to 342.70 on the BSE in Monday’s intra-day trade and rose 135 bps quarterly (Q-o-Q) 6.46 per cent and 3.01 per cent respectively.

At 11.29 am, shares of the private sector lender were up 6% at Rs 336.90, while the S&P BSE Sensex was up 0.72%. It reached a 52-week high of Rs 354.10 on June 28, 2021. In the fourth quarter, Bandhan Bank reported a healthy improvement in its operating performance, with net interest income (NII) rising 44.6% year-on-year and 19.5% Q-o-Q to Rs 254 crore.

The bank’s net profit surged to Rs 1,902 crore from Rs 1.03 crore a year ago, helped by low provisions and higher net interest income (NII). Last quarter, it posted a net profit of Rs 859 crore. Net interest margin (NIM), a measure of profitability, increased to 8.7% this quarter from 7.8% in the previous quarter. Provisions were only Rs 470 crore compared to Rs 805 crore Q-o-Q and Rs 828 crore year-on-year due to a sharp recovery in asset quality.

However, Bandhan Bank has underperformed the market over the past three years, falling 40%, while Sensex has risen 42%. Shares have underperformed over the past year due to uncertainty over asset quality. Nonetheless, analysts at ICICI Securities believe that a substantial improvement in asset quality and a better outlook should positively impact.

Guidance for healthy loan growth targeting higher guaranteed book ratios remains positive. Significant improvement in asset quality favours all other parameters; achieving an estimated recovery of around Rs 5,000 crore remains critical. The benefits of rising rates for emerging businesses (EEB) will be fully realized from this year onwards. As a result, net interest margins are likely to improve, increasing revenue, the brokerage said in its earnings update.

“Bandhan Bank’s overall performance is strong, collection efficiency has improved, asset quality has improved significantly, and business growth has accelerated. Management has guided asset quality to improve, and loan growth has stabilized. We will significantly increase FY23/FY24 earnings by 23%/17%, factoring in low credit costs and a return to growth,” Motilal Oswal Financial Services said.

The brokerage maintained its neutral rating on the stock, raising its target price to Rs 350 per share (based on 2.2x FY24E BV).