Bandhan Bank Q1 FY27 Earnings Call Transcript: PAT Rises 35% Despite Funding Cost Pressures

What Happened ?

key details

Loan Book Diversification Continues to Strengthen:

• Gross advances increased to ₹1.56 lakh crore, growing 16% YoY.
• The non-EEB portfolio expanded 27% YoY and now contributes around two-thirds of the overall loan book.
• The secured portfolio grew 27% YoY and now accounts for 57% of total advances.
• Retail assets recorded 45% YoY growth, led by commercial vehicles, construction equipment, auto loans and gold loans.
• Wholesale Banking advances increased 38% YoY, supported by disciplined portfolio expansion and deeper corporate relationships.

Note:

• Diversification towards secured lending continues to reduce dependence on the traditional microfinance portfolio and improve the resilience of the balance sheet.

Deposit Franchise Becomes More Granular:

• Total deposits reached ₹1.65 lakh crore, up 7% YoY.
• Retail deposits (CASA and retail term deposits) grew 16% YoY.
• CASA balances increased to ₹48,479 crore, resulting in a 29.4% CASA ratio.
• Bulk deposits declined 13% YoY, reducing their share from 32% to 26% of total deposits.
• Around 86% of bulk deposits are non-callable, providing greater funding stability. 

Note:

• Management continues to prioritize improving the quality of deposits rather than maximizing deposit growth.

Asset Quality Continues to Improve:

• Overall collection efficiency (excluding NPAs) remained strong at 98.9% during June 2026.
• Collection efficiency within the EEB portfolio remained stable at 98.5%.
• Gross slippages stood at ₹1,079 crore, broadly stable compared with the previous quarter.
• EEB slippages improved sequentially to ₹604 crore from ₹690 crore in Q4 FY26.
• During the quarter, the bank sold ₹291 crore of housing NPAs to an ARC and undertook ₹597 crore of technical write-offs, further strengthening reported asset quality. 

Note:

• Management believes recent delinquency trends remain largely seasonal and expects further moderation in credit costs.

External Challenges Prompt ROA Guidance Revision:

• Management revised its FY27 exit ROA guidance to 1.2%–1.4%, from the earlier aspiration of 1.6%–1.8%.
• The revision is attributed entirely to external factors rather than operational issues.
• Key headwinds include:
  • Rising funding costs despite stable repo rates.
  • Higher technology investment expenses.
  • Geopolitical tensions in the Middle East.
  • Uncertainty surrounding the monsoon and broader macroeconomic environment.
• Management emphasized that its medium-term strategic objectives remain unchanged. 

Note:

• The bank continues to target long-term profitability improvement but expects external conditions to delay the pace of achieving earlier return targets.

Technology Investments Remain a Strategic Priority:

• IT expenses increased significantly due to investments in:
  • Loan Origination Systems (LOS).
  • Core technology infrastructure.
  • Digital banking capabilities.
  • Governance and risk management platforms.
• Technology costs now account for approximately 9.5% of total operating expenses, including depreciation.
• Management expects elevated investment levels to continue over the next 18–24 months before efficiency gains begin to materialize.
• Future productivity improvements are expected through greater branch-led sourcing, digital loan origination and enhanced cross-selling capabilities.

Note:

• Current technology investments are intended to improve long-term scalability rather than deliver immediate earnings benefits.

Management Outlook:

• Management expects overall advances to continue growing broadly in line with its FY27 guidance.
• The bank remains focused on expanding secured lending while maintaining EEB exposure at around 33–35% of the total loan portfolio.
• Credit costs are expected to improve further as asset quality continues to strengthen.
• Future profitability will be supported by higher fee income, better portfolio diversification and continued operational efficiencies.
• Management remains committed to building a stronger, technology-enabled banking franchise despite near-term macroeconomic challenges.

Risk Analysis

Summary:

• Bandhan Bank delivered a resilient Q1 FY27 performance with healthy loan growth, improving asset quality and stable profitability. However, management cautioned that the operating environment has become more challenging due to rising funding costs, higher technology investments, geopolitical tensions in the Middle East and uncertain weather conditions. While the bank’s internal execution remains on track, these external factors may slow the pace of profitability improvement over the coming quarters.

Key Risks:

• Rising deposit rates and funding costs could continue to pressure Net Interest Margins (NIMs).
• Geopolitical tensions in the Middle East may increase technology procurement costs and broader operating expenses.
• Slower-than-expected growth in the Emerging Entrepreneurs Business (EEB) portfolio could affect overall yield expansion.
• Uncertain monsoon conditions and higher energy costs may impact borrower repayment capacity, particularly in the microfinance segment.
• Continued investments in technology are expected to keep operating expenses elevated over the near term.
• Competitive pressure in deposits and lending could limit margin expansion despite healthy credit growth. 

Worst Case:

• If funding costs remain elevated, geopolitical uncertainties persist and the operating environment weakens further, Bandhan Bank could experience slower margin expansion, higher operating expenses and delayed improvement in return ratios. A prolonged slowdown in the microfinance segment or deterioration in borrower repayment behaviour could also increase credit costs and affect profitability.

Risk Level: Medium

Company Commentary

• Management reiterated that the reduction in FY27 ROA guidance reflects external macroeconomic factors, not deterioration in the bank’s underlying business.
• The bank remains committed to maintaining a diversified loan portfolio, with EEB contributing around 33–35%of total advances over time.
• Credit costs are expected to improve further as asset quality continues to strengthen.
• Technology investments will continue to support digital transformation, operational efficiency and future cross-selling opportunities.
• Despite near-term challenges, management remains focused on delivering sustainable and profitable long-term growth while strengthening the balance sheet.