Shares of Kolkata-based private lender Bandhan Bank have surged 25 percent in the last 12 trading sessions after the bank posted a strong Q2 update and CLSA putting a positive note.

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CLSA said the bank’s core business – with a focus on underpenetrated products in underpenetrated geographies -- will help it climb back to high growth and industry-leading return ratios in the medium term.

"The bank's focus products, i.e.microfinance, affordable housing and MSME, are high-yielding, operationally intensive and smaller in ticket size. We believe the Gruh Finance acquisition gives a fillip to scale up its affordable housing finance business," said the report.

Since it was given a bank licence, Bandhan has rapidly scaled up its deposit franchise – taking just 12 quarters to ramp up its CASA ratio from 21 percent in March 2016 to 40 percent in December 2018, about as big as many older banks. This gives it access to cheap funds.

CLSA added that its microfinance (MFI) loans (65 percent of total loans) have held up better than the industry.

The microfinance segment, which involves giving small loans to the unbanked or under-banked, was among the fastest growing loan segments in India over the past decade. In the previous fiscal, the bank had a 36 percent stake in the MFI industry, the largest in the sector.

Thanks to the above factors, the brokerage initiated a 'BUY' on the stock with target price at Rs 400.

Q2 Business Update

According to the company's exchange filing, the total advances for the quarter grew by 3 percent sequentially while deposits growth was 9 percent QoQ, adding the year-on-year increase was 20 percent and 34 percent respectively.

Deposits jumped to Rs 66,153 crore in September 2020, from Rs 49,195 crore in year-ago period, it added.

Bandhan Bank said collection efficiency for September was around 92 percent. Of this, the collection efficiency for micro finance segment stood at around 89 percent, while for mortgage, and other (including SME & NBFC) it was about 98 percent each.

It said 94 percent of micro finance customers paid in September, the filing added further.