Bandhan Bank: Bandhan Bank’s weight in MSCI India index may rise by 32 bps

Bandhan Bank’s weight in the MSCI India Index is likely to go up by 32 basis points in its next rejig due to an increase in free float, which could trigger an inflow of about Rs 700 crore from overseas passive funds, Morgan Stanley said. MSCI will announce its review of indices Wednesday.

Analysts tracking the Indian bank are bullish, with 14 of the 20 brokerages assigning a ‘buy’ rating, with an average target price of Rs 625, or 36 per cent higher than the current market price.

Bandhan Bank’s FII limit has been increased to 49 per cent in October. The promoter stake in the bank has declined from 82 per cent to 61 per cent in the December quarter after the non-operative financial holding company (NOFHC), Bandhan Financial Holdings, trimmed its holding through the merger with Gruh Finance.

Shares of Bandhan Bank have declined more than a quarter since October 15 as its microfinance lending portfolio in the Northeast, particularly Assam, was hit due to ongoing protests in the region. The portfolio accounts for a sixth of its advances in this category of loans.

The successful merger with Gruh Finance has led to addition of Rs 18,000 crore to total assets under management.

The merger will deliver both revenue and cost synergies such as extending loans to about 2.7 lakh Gruh customers and other substantial synergies. Going ahead, merger synergies are seen kicking in with Gruh leveraging the bank’s ability to garner low-cost liabilities and vast distribution network in eastern India, said analysts.

“Bandhan Bank’s robust business traction and customer acquisition is poised to continue post-merger,” said Kajal Gandhi, analyst, ICICI Securities. “Given robust growth and superior asset quality, we remain positive on business growth as well profitability, along with steady asset quality.”