Bandhan Bank loan growth outpaces guidance as funding mix shifts towards retail

Investment View and Rating

In its July 20, 2026 Q1FY27 preview, Deven Choksey Research expects Bandhan Bank Ltd. to deliver modest sequential profit growth, supported by lower funding costs and normalisation of the elevated Q4FY26 cost base. The broker retains a HOLD recommendation with a target price of Rs 222, implying about 4 per cent upside from the CMP of Rs 213.

The report's rating history shows that Deven Choksey Research had previously assigned an ACCUMULATE rating with a Rs 172 target on November 4, 2025.

Loan Growth and Funding Mix

Based on Bandhan Bank's July 3 provisional business update, the loan book, including on-book assets and PTCs, rose 16.4 per cent year-on-year and 0.8 per cent quarter-on-quarter to Rs 1,55,513 Cr. This growth is ahead of management's FY27 loan-growth guidance of 14 per cent to 15 per cent.

Deposits increased 6.6 per cent year-on-year to Rs 1,64,886 Cr but declined 0.9 per cent sequentially as Bandhan Bank continued its planned runoff of bulk deposits and shifted the funding mix towards retail deposits. CASA improved marginally to 29.40 per cent from 29.31 per cent in Q4FY26, while the retail deposit mix reached a record 73.96 per cent.

Q1FY27 Earnings Estimates

For Q1FY27, Deven Choksey Research estimates net interest income of Rs 2,853 Cr, up 2.1 per cent quarter-on-quarter and 3.5 per cent year-on-year. The estimate is based on an expected continued decline in the cost of funds as lower term-deposit rates progressively reprice through Bandhan Bank's liabilities.

The broker does not publish a directly comparable NIM estimate because its average-balance methodology does not reconcile with the bank's reported Q4FY26 NIM of 6.2 per cent. It instead anchors its assessment on net interest income. The broker expects funding costs to ease in line with management guidance, although asset yields could remain under pressure as the higher-yielding EEB portfolio declines as a proportion of advances.

Provisions, Credit Costs and Profitability

The broker estimates Q1FY27 provisions of Rs 816 Cr, equivalent to annualised credit cost of 214 basis points, versus 180 basis points in Q4FY26. This provisioning assumption is deliberately conservative and broadly aligned with Street expectations because microfinance sector stress has not fully normalised, despite relatively stable June collection efficiency of 98.9 per cent for the bank and 98.5 per cent for EEB.

Estimated Q1FY27 PAT is Rs 538 Cr, up 0.7 per cent quarter-on-quarter and 44.7 per cent year-on-year. Estimated pre-provision operating profit is Rs 1,568 Cr, up 8.8 per cent sequentially but down 6.0 per cent year-on-year.

Operating Expense Base Effect

A material portion of expected sequential PPOP improvement reflects a base effect. Q4FY26 operating expenses included about Rs 120 Cr of one-off costs and Rs 73 Cr of holiday-related overtime accruals. Excluding these items and allowing for annual wage revisions, the broker estimates operating expenses to decline 7.8 per cent quarter-on-quarter.

Key Risks and Monitorables

• Collection efficiency: July and August collection trends, especially in EEB portfolios outside Bandhan Bank's core geographies, where stress remained intermittent during FY26.
• Funding mix: The mix between refinance and market borrowings, which will influence Q2FY27 funding costs.
• FY27 exit targets: Progress towards management's targets of ROA of 1.6 per cent to 1.8 per cent, credit cost of 1.6 per cent to 1.7 per cent and a secured mix of 58 per cent to 42 per cent.
• Seasonal asset-quality risk: Bandhan Bank's historically weaker Q2 asset-quality performance during the monsoon over the past two years remains an important differentiating risk versus the broader microfinance sector.