Bandhan Bank Profit Halves in Q3 FY26 Despite Loan Growth

Introduction

Bandhan Bank Ltd announced a mixed performance for the third quarter of fiscal year 2026, with a significant decline in profitability overshadowing steady growth in its core lending and deposit-gathering operations. For the quarter ended December 31, 2025, the Kolkata-based lender reported a 51.79% year-on-year (YoY) fall in net profit, a development that has drawn close attention from investors and analysts. Despite the pressure on its bottom line, the bank demonstrated resilience in business expansion, posting double-digit growth in both its loan book and total deposits.

Profitability Under Pressure

The bank's financial results revealed a sharp contraction in net profit, which stood at ₹205.59 crore for Q3 FY26, compared to ₹426.48 crore in the same period of the previous year. This decline was accompanied by a 7.11% YoY drop in total income, which fell to ₹6,122.24 crore from ₹6,590.55 crore. The reduction in both income and profit highlights the challenges the bank faced during the quarter, likely stemming from margin pressures or increased operational costs, even as it managed to grow its balance sheet.

Steady Growth in Loans and Deposits

On the operational front, Bandhan Bank reported healthy business momentum. Gross advances grew by 10% YoY, reaching ₹1.45 lakh crore as of December 31, 2025. This indicates sustained credit demand and the bank's ability to expand its lending activities. Secured advances were a key driver, growing 27% YoY and now constituting nearly 57% of the total loan portfolio, reflecting a strategic move towards a more secured asset base.

Total deposits also saw robust growth, increasing by 11.1% YoY to ₹1.57 lakh crore. This expansion in the deposit base provides the necessary funding for the bank's lending operations. However, on a sequential basis, total deposits saw a marginal dip of 0.9%, reflecting some moderation in the quarter.

A Strategic Shift in Deposit Composition

A significant trend observed during the quarter was the continued strategic shift in the bank's deposit mix. While total deposits grew, the low-cost Current Account Savings Account (CASA) deposits declined by 4.5% YoY to ₹42,730 crore. Consequently, the CASA ratio, which measures the share of low-cost deposits, fell to 27.26% from 31.73% a year earlier. A lower CASA ratio typically implies a higher cost of funds for a bank.

In contrast, the bank saw strong traction in retail term deposits, which surged by 35.8% YoY to ₹70,690 crore. This growth pushed the share of retail deposits (including CASA) to 72.37% of total deposits, up from 68.65% a year ago. This shift underscores the bank's focus on building a more granular and stable retail funding base, even if it comes at a higher immediate cost compared to CASA funds.

Key Business Metrics for Q3 FY26

Asset Quality and Liquidity Position

Bandhan Bank reported an improvement in its operational efficiency metrics, signaling stable asset quality. The pan-bank collection efficiency (excluding non-performing assets) improved to 98.1% in December 2025 from 97.8% in September 2025. This improvement is a positive indicator of the bank's collection processes and the repayment capacity of its borrowers.

The bank also maintained a strong liquidity position. Its Liquidity Coverage Ratio (LCR) stood at approximately 149.14% as of December 31, 2025, well above the regulatory requirement. This robust liquidity buffer provides a cushion against unforeseen market shocks and supports future growth.

Market Reaction

Following the release of its provisional business update, shares of Bandhan Bank reacted positively. The stock rose 3.9% to an intraday high of ₹150.05. This suggests that investors may have placed more weight on the steady operational growth and improving collection efficiency rather than the headline profit decline, viewing the underlying business fundamentals as resilient.

Analysis and Outlook

The Q3 FY26 performance presents a dual narrative for Bandhan Bank. The steep fall in net profit is a significant concern and will be closely scrutinized for its underlying causes, whether they are one-time provisions or persistent margin pressures. The decline in the CASA ratio is a headwind, increasing the cost of funds. However, the bank's net interest margin (NIM) did see a slight sequential improvement to 5.9%, offering a glimmer of stability.

On the other hand, the consistent growth in the loan book, particularly in secured advances, and the strategic pivot towards a retail-heavy deposit base are positive long-term developments. The improvement in collection efficiency further strengthens the outlook for asset quality. The bank's ability to balance growth with profitability will be the key determinant of its performance going forward. Observers will be watching for a recovery in earnings and stabilization of margins in the upcoming quarters.

Conclusion

In summary, Bandhan Bank's third-quarter results reflect a period of transition. While profitability took a significant hit, the bank's core business of lending and deposit mobilization remains robust. The strategic focus on strengthening the retail franchise and improving asset quality are steps in the right direction. The immediate challenge for the management will be to address the factors impacting profitability and guide the bank back to a path of sustainable earnings growth.