'Timing unexpected but': RBI's Bandhan Bank move similar to RBL, YES Bank. Here are share price targets

Bandhan Bank Ltd has indicated that it would have a representation from the RBI at the board for a period of one year but analysts are not worried. The private lender said Arun Kumar, Chief General Manager (retired) from the RBI, would now be an additional director. This comes at a time when Chandra Shekhar Ghosh, the current MD & CEO of the bank, is scheduled to retire next month on July 9.

The action by the RBI is similar to what was seen in some other banks such as YES Bank Ltd, RBL Bank, Ujjivan SFB and Dhanlaxmi Bank around the time of their respective CEO succession.

"It is important to note here that in the other cases the RBI-appointed directors generally were appointed with a tenure of two years, whereas in the case of Bandhan Bank, the RBI representative director has been appointed with a period of one year. In some cases, the RBI even appointed two directors on the board (Yes Bank, Dhanlaxmi Bank). In most cases, the eventual CEO appointed by the bank was an ex-PSU banker (barring Ujjivan SFB that eventually appointed an internal candidate)," Nomura India said.

The foreign brokerage insisted this does not necessarily imply the same will hold true for Bandhan Bank. For now, Nomura India finds the stock worth Rs 170.

Kotak Institutional Equities said the timing of the announcement is unexpected but added that it is a less worrisome development. This (the development) appears to be a means to have an oversight of the leadership transition process, the brokerage said.

"We don’t see an immediate reason to change our view on asset quality, growth or return ratios or any change in style of running of the organization in the medium term. We maintain BUY rating with an unchanged fair value at this stage of the cycle," Kotak said while suggesting a target of Rs 250 on the stock.

As the board is yet to finalise potential candidates for the MD & CEO position and JM Financial believes the move should see a smooth functioning especially in light of the fact the relatively new management team -- with two Executive Directors joining post March 2023 and CFO in February 2024), is at the helm.

"We do not think this should result into renewed worries on asset quality outcomes for the bank. However, we still await the outcome of the CGFMU forensic audit. While investors will remain in wait and watch mode until clarity on the new CEO emerges. In past instances of RBI appointing additional directors, experience suggests that RBI directors have exited their positions even prior to completion of the term when leadership transition has been achieved or desired stability at the bank has been achieved," JM Financial said.

This brokerage has a target price of Rs 260 on the stock.

Also, in Bandhan’s case the appointment is for a period of 1 year (vs 2 years in case of other banks). Hence, we do not view the current event necessarily as a negative development and would closely monitor delivery on asset quality and look forward to update on CGFMU outcome and MD&CEO appointment. Current valuations (1.1x FY26E P/BV) remain attractive in our view. Maintain BUY with a target price of 260.