Bandhan Bank's future uncertainty: Chandra Shekhar Ghosh's exit raises many questions

Six years ago, Axis Bank saw the sudden exit of Shikha Sharma even though the board had approved her tenure for a fourth term. Around the same time, YES Bank saw the exit of Rana Kapoor. More recently, RBL Bank’s MD & CEO Vishwavir Ahuja left the bank abruptly. In all these cases, the Reserve Bank of India had issues in extending the tenures of the CEOs. A similar story played out for the Kolkata-headquartered Bandhan Bank three years ago, when the board proposed a five-year tenure for the Founder, MD and CEO Chandra Shekhar Ghosh, but RBI approval was only for three years. On April 5, Ghosh announced his plans to retire;  the bank’s board had approved another three-year term in November 2023. Was RBI not comfortable with Ghosh continuing as MD & CEO beyond July this year?

Ghosh founded the microfinance institution some three decades ago. After transforming it into an NBFC in the mid-2000s, he successfully secured a universal banking licence in August 2015. But Bandhan Bank’s journey as a private bank has been full of challenges—demonetisation in 2016, GST in 2017, the IL&FS debacle in 2018, cyclone Fani hurting asset quality in 2019, and the Assam microfinance crisis in 2020. Then the pandemic arrived, pushing non-performing assets to a peak of 6.81% in 2020-21. Since it had to go for accelerated provisioning and write-offs post-Covid, 2020-21 saw profitability drop to Rs 2,205 crore from Rs 3,023 crore in 2019-20. In 2021-22, net profit crashed to a low of Rs 125 crore. It, however, surged 17.45 times from a low base in FY23 to register a net of Rs 2,194.64 crore.

The bank was also hit by the audit of the National Credit Guarantee Trustee Company (NCGTC), which offers  guarantees for collateral-free micro loans. NCGTC conducted a routine audit of the bank’s claims, and made some observations. The bank claimed that the observations were inadequate. But NCGTC soon decided to carry out a detailed audit of Bandhan’s loans portfolio. 

The leadership change has created uncertainty among investors. The stock has been on a downhill journey in the last six years.

“The MD’s resignation may delay the recovery in underlying business and earnings. This will also keep investors watchful of the bank’s growth and profitability,” states brokerage Motilal Oswal in a report.

The bank will now have to start the process of looking for a successor before Ghosh’s term ends in July. More trouble is expected as Ghosh’s departure may lead to subsequent exits at the senior level.  
     
@anandadhikari