Why Bank of Maharashtra Share Price is Falling

Public sector banks (PSU banks) staged a remarkable performance for most part of calendar year 2024. This surge was largely driven by improved earnings, better asset quality, and increased investor confidence in government-backed institutions.

These banks also benefited from a positive market sentiment around the Indian banking sector's role in supporting the country's economic growth, particularly in the infrastructure and retail sectors. As a result, PSU banks saw significant capital inflows, pushing their stock prices higher.

However, since August 2024, PSU banks have come under selling pressure.

Stocks like Indian Bank, Punjab & Sind Bank, Indian Overseas Bank, UCO Bank, witnessed declines of 5-9% during the month. The Nifty PSU Bank Index, which tracks the performance of public sector banks, has historically struggled in the month of September.

This seasonality is reflected in the performance of major public sector banks like Bank of India, SBI, and Bank of Maharashtra, which have all fallen more frequently than the index itself.

Bank of Maharashtra is one of the PSU banks facing a sharp fall in its stock price. Over the past month, its share price has slipped by 8.5%, signaling growing concerns among investors.

Let's take a closer look at what factors are dragging down Bank of Maharashtra's share price.

#1 Qualified Institutional Placement

Bank of Maharashtra share price came under pressure when it launched a qualified institutional placement (QIP) aimed at raising Rs 35 billion (bn). The bank set a floor price of Rs 60.4 per share, just above the previous day's closing price of Rs 59.8.

On 5 October 2024, the bank confirmed the issuance and allotment of over 610 million (m) equity shares, each with a face value of Rs 10, to eligible institutional buyers. These shares were issued at a discounted price of Rs 57.4 per share, against the floor price of Rs 60.4. The total raised from the issue was Rs 34.9 bn.

Although the QIP helps the bank meet its capital requirements, the discounted issue price has led to concerns about dilution of existing shareholders' equity, which often causes share prices to fall.

In this case, the bank offered a discount to attract buyers, leading to a minor drop in its stock price over the past month. The bank's paid-up share capital increased to Rs 76.9 bn from Rs 70.8 bn following this issue.

The QIP opened on 30th September 2024 and closed on 4th October 2024. While this move supports the bank's long-term growth, the short-term pressure caused by the discounted pricing and the dilution of shares has put downward pressure on the stock.

#2 Sectoral Headwinds

Apart from that, Bank of Maharashtra has faced a challenging environment, like other public sector banks (PSBs), with multiple factors contributing to the decline in its share price. PSU banks have seen weak business growth and margin compression recently.

In the first quarter of FY25, the net interest margin (NIM) of PSBs fell due to high-cost deposits, despite continued credit growth. Experts suggest that NIM pressure will persist for some time, further affecting earnings for the sector.

The banking sector enjoyed a strong cycle earlier, benefiting weaker PSBs, including Bank of Maharashtra. However, the cycle is maturing.

Credit costs are rising, and deposit growth is lagging behind credit growth. This situation has led to a shift towards private banks, which are perceived as better managed. This shift is likely to continue, adding pressure on PSU stocks.

The seasonality effect has also impacted PSU bank stocks. Historically, September has been a weak month for the Nifty PSU Bank Index, which saw a time-wise and price-wise correction.

Current concerns, such as NIM pressure and NPA issues related to the agriculture sector, along with regulatory requirements like expected credit loss (ECL) provisioning, are keeping any major recovery in check. All these factors are collectively causing Bank of Maharashtra's share price to remain under pressure.

What Next?

Bank of Maharashtra is focusing on several initiatives to strengthen its future growth. The bank plans to enhance its digital offerings, including revamping its mobile banking app.

It aims to make the app a comprehensive lifestyle banking solution, allowing for more seamless client onboarding and improved digital engagement. This digital push also extends to expanding video KYC functionality, which is available 24/7, even on holidays.

On the deposit side, the bank is working on retaining and expanding its deposit base. It has introduced special schemes to compete with higher interest rates offered by competitors, aiming to maintain and grow its market share.

The bank is also deepening its relationships with government departments and other institutions to secure more stable deposits. Bank of Maharashtra is exploring opportunities in co-lending partnerships with high-rated NBFCs and is looking at further developing its infrastructure book.

It aims to collaborate with term lending institutions to finance renewable and infrastructure projects. This strategy aligns with its focus on sustainable growth.

The bank has created new verticals to centralise operations and enhance oversight in key areas like loan underwriting and monitoring, which will help maintain asset quality. It is also revamping its retail loan schemes to make them more market-friendly while managing risk effectively.

In terms of recovery, Bank of Maharashtra has set ambitious targets, including a focus on recovering Rs 12.5-15 bn from its write-off book, which stands at Rs 200 bn. The bank plans to clean up small NPA accounts through a one-time settlement scheme.

Additionally, it is preparing for a large auction of over 500 properties in physical possession to further strengthen its balance sheet.

How Bank of Maharashtra Share Price has Performed Recently

In the past five days, Bank of Maharashtra share price has tumbled 5.4%. In the last month, it has slipped 8.5%.

The stock price has surged 19.9% in the 2024. Additionally, it has rallied 16.1% in the last year.

The stock touched its 52-week high of Rs 73.5 on 3 June 2024 and a 52-week low of Rs 38.7 on 26 October 2023.

About Bank of Maharashtra

Bank of Maharashtra is an Indian public sector bank headquartered in Pune. The bank had 30 m customers across the country with 2263 branches as of June 2023. It has the largest network of branches of any nationalised bank in the state of Maharashtra.

For more details about the company, you can have a look at the Bank of Maharashtra fact sheet and quarterly results on our website.

For a sector overview, read our banking sector report.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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