The case is about the challenges faced by Bandhan Bank Limited (Bandhan Bank), once the most valuable Indian banking and financial services company by market capitalization. Started in 2001 as a not-for-profit enterprise that stood for financial inclusion and women empowerment, Bandhan turned into an NBFC and a few years later transformed itself into a universal bank. Bandhan commenced its banking operations and joined the league of big banks in August 2015. Its unique business structure focuses on serving under-banked and under-penetrated markets in India with its offerings of a variety of asset and liability products and services. Bandhan remained a strong compounding story given its potential to play on the vast rural opportunity, best operating metrics, and robust capital base. In less than three years of operation, the bank went public to meet regulatory compliance and priced its issue four times the book value. This made the bank’s valuation more expensive than established Indian banking peers. Within five months of its public listing, Bandhan Bank’s sharp jump on the stock market made it the costliest banking stock in the sector in terms of price-to-book value ratio. After meeting the regulatory mandate of public listing, Bandhan Bank has been struggling to comply with the licensing requirement of bringing down promoter holding in the bank. India’s central bank, the Reserve Bank of India, imposed strictures on Bandhan Bank for failing to reduce promoter shareholding. The RBI decision has left the stakeholders apprehensive and affected the shares of the bank, which have plunged to their lowest, since its market debut in March 2018. Notwithstanding the bank’s scale of operation, enviable track record in micro loans, and future business potentials, expensive valuation was the key issue for the bank. The bank was also vulnerable to the risks associated with its geographical concentration, micro-lending focus, asset quality deterioration, and asset-liability mismatch. However, founder and CEO Chandra Shekhar Ghosh aimed to prove that a bank serving those untouched by the banking industry could otherwise sustain itself through its rich valuation stocks and be profitable as well. Going forward, will he be able to maintain the pace of growth and quality of assets of the bank, while protecting shareholder’s value?

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Issues

The case is structured to achieve the following teaching objectives:

	Understand Bandhan’s transition from a microfinance instition (MFI) to a relationship based responsible lender in the Indian banking system.
	Evaluate how Bandhan Bank’s differentiated business model helps in strengthening its business performance and operating metrics.
	Examine the financial performance and sustainability of Bandhan Bank.
	Forecast Bandhan Bank’s financial statements and conduct the bank’s stock price valuation.
	Understand the key concern for the bank – how to maintain shareholder’s value.

Contents

INTRODUCTION

BACKGROUND NOTE

TRANSITION TO UNIVERSAL BANK

BANDHAN BUSINESS MODEL

BANDHAN BANK IPO

REGULATORY ACTION AND ITS IMPACT

CHALLENGES FACED

THE ROAD AHEAD

EXHIBITS

Keywords

Banking, Microfinance, Financial Inclusion,DuPont Analysis, P/E ratio, Residual income valuation, Discounted cash flow, Dividend discount model, Capital asset pricing model, Sustainable finance, ESG, Social value creation, Public listing, IPO valuation, Shareholders’ value

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