Bandhan Bank: Navigating a Transitional Quarter with Strategic Realignment

Bandhan Bank Limited has reported a quarter of strategic realignment and transition for Q2 FY26, marked by robust growth in advances and deposits but a notable moderation in profitability. While gross advances expanded by 7.2% year-on-year to ₹1,400.4 crore and total deposits grew 10.9% YoY to ₹1,580.7 crore, the bank's Net Interest Income (NII) saw an 11.8% YoY decline, settling at ₹25.9 crore. Profit After Tax (PAT) experienced a significant dip, falling 88.1% YoY to ₹1.1 crore, reflecting the impact of a repo rate cut and elevated slippages in the Emerging Entrepreneurs Business (EEB) segment.

Performance Highlights and Underlying Trends

The quarter's financial performance, while below internal expectations, reveals underlying trends that management believes will position the bank for sustainable growth. The non-EEB book, encompassing housing, retail, and wholesale banking, demonstrated strong, broad-based growth of 24% YoY, now constituting 62.4% of total advances. This diversification is a key strategic pillar, reducing reliance on the EEB segment.

Retail deposits, including CASA and retail term deposits, grew by 16.1% YoY, with CASA deposits showing renewed momentum with a 5.6% sequential growth. This indicates a strengthening and granular deposit base, crucial for stable funding. The bank's Operating Expenses to Average Assets ratio improved to 3.8%, highlighting disciplined cost management efforts.

Asset quality, particularly in the EEB segment, showed mixed signals. While gross slippages increased marginally, SMA-1 and SMA-2 balances declined sequentially, offering early signs of improvement. The bank undertook technical write-offs of ₹86.5 crore during the quarter, with EEB contributing ₹79.9 crore. The Gross NPA ratio remained stable at 5.0%, and Net NPA at 1.4%.

Strategic Initiatives and Future Outlook

Bandhan Bank is actively pursuing several strategic initiatives to drive future growth and enhance operational efficiency. The bank launched the "Grow CASA, Grow Together" campaign to boost current and savings account growth and introduced specialized products for HNI individuals. Digital transformation remains a key focus, with integrations for government collections (Central Board of Indirect Taxes and Customs, Khajane-2 payment system, Integrated Financial Management System in Rajasthan and Jharkhand) and enhanced digital collection solutions for EEB customers, including unique QR codes and a web-based module.

Management expects margins to improve from Q4 onwards as the full benefits of lower term deposit costs materialize. The bank aims for a Net Interest Margin (NIM) of around 6% in the medium term. Credit costs are projected to stabilize around 2.5% in the next two to three years, with an overall bank credit cost of 1.5% to 1.6% by FY27. The EEB portfolio is expected to see gradual growth from Q3 onwards, supported by prudent lending and improved collections. The bank also plans to expand its branch network, particularly in the Southern and Northern regions, while maintaining a strong focus on digital capabilities.

Conclusion: Building for Sustainable Growth

Bandhan Bank's Q2 FY26 performance reflects a period of necessary adjustments and strategic recalibration. While short-term profitability has been impacted by external factors and internal portfolio shifts, the bank's consistent efforts in diversifying its loan book, strengthening its deposit base, and embracing digital solutions are laying a solid foundation. Management's clear guidance on future margins and credit costs, coupled with proactive initiatives, underscores a commitment to achieving balanced, profitable growth and enhancing shareholder value in the long run. The bank is strategically positioning itself to leverage emerging opportunities and navigate the evolving financial landscape with disciplined execution.