Why did Jana small finance bank rally 20% today and hit upper circuit?

The newly listed small finance bank has delivered an impressive return of 45 per cent since its listing over its final issue price.

The Shares of Jana Small Finance Bank surged by 20 per cent to reach Rs 600 on April 30, the substantial surge in its share price can be attributed to investor optimism fuelled by the bank's declaration of its plans to seek a universal banking license by May-June 2025. It is among the Top Gainers on the Indian Exchanges today.

This move follows closely on the heels of a circular issued by the Reserve Bank of India (RBI) regarding the voluntary transition of Small Finance Banks to Universal Banks. The circular outlines additional criteria for banks seeking this transition, including maintaining a net non-performing assets (NNPA) ratio of 1 per cent or less over the past two financial years. Furthermore, banks must meet specified compound annual growth rate (CAGR) benchmarks, demonstrate positive net profits in the preceding two financial years, and keep gross non-performing assets (GNPA) at 3 per cent or below over the same period.

Moreover, the guidelines stipulate that a small finance bank must demonstrate a satisfactory track record of performance for a minimum period of five years, have a listing on exchanges, and maintain a minimum net worth of Rs 1,000 crore as of the end of the previous quarter.

Based on the bank's Quarterly Results, the Small-Cap bank’s standalone net worth stands at Rs 3,577 crore, surpassing the threshold outlined in the RBI's guidelines. Regarding asset quality, Jana Small Finance Bank reported gross non-performing assets (GNPA) of 2 per cent in FY24, 3.2 per cent in FY23, and 5 per cent in FY22. Additionally, the net non-performing assets (NNPAs) for the corresponding periods were 0.5 per cent, 2.4 per cent, and 3.4 per cent, respectively.

The bank’s shares made its market debut in February 2024. Since its listing, shares of Jana Small Finance Bank have surged around 45 per cent.

At the start of the day's trading session, the stock opened at Rs 567 per share, compared to the previous day's closing figure of Rs 500.30 per share on the NSE. As of the time of writing this article, the shares are currently at Rs 600.35 per share on the NSE. The stock has reached the upper circuit price limit of 20per cent, reflecting strong demand in the market with no sellers willing to offer shares, resulting in potential buyers being unable to make purchases, leading to disappointment among buyers. Trading volume spiked by over 13.21 times today.

The bank’s stock has a potential to deliver multibagger returns in the upcoming days. Investors must keep this stock on their radar.