Bandhan Bank targets 1.5% ROA by FY28 as credit costs fall

Why the profitability reset matters now

Bandhan Bank is positioning the next two years as a rebuild phase for profitability after an extended period of asset quality stress that kept return ratios below potential. Management’s central thesis is that three moving parts are now aligning: stabilising net interest margins, easing credit costs, and a gradual normalisation in asset quality. If these trends hold, the bank expects returns to recover meaningfully from current levels. A key internal target is return on assets (ROA) of 1.3% to 1.5% by FY27 to FY28.

The strategy is unfolding alongside a broader shift in the loan book mix. Bandhan has been increasing the share of secured assets and moderating its microfinance pace after regulatory guardrails and higher stress in some geographies. Management commentary across investor interactions and earnings updates indicates the bank is prioritising portfolio resilience and collections, while aiming to return to healthier growth.

ROA target: 1.3% to 1.5% by FY27–FY28

Bandhan Bank has guided to a meaningful recovery in profitability over the next two years, with ROA expected to rise to 1.3% to 1.5% by FY27 to FY28. The building blocks cited are improving margins, lower interest reversals as slippages moderate, and a reduction in credit costs as provisioning normalises.

In Q1 FY26, the bank reported an annualised ROA of 0.8% and annualised return on equity (ROE) of 6%. That quarter also highlighted the pressure from the Emerging Entrepreneurs Business (EEB) segment, which includes microfinance loans, and where management indicated challenges could persist until Q2 FY26, followed by gradual recovery in the second half of FY26.

Margin outlook: cost of funds relief versus repo and mix impact

Management expects net interest margins (NIMs) to improve further in coming quarters, driven by a continued reduction in cost of funds and lower interest reversals as slippages moderate. The bank has acknowledged that a 25 basis point repo rate cut could have a near-term impact on yields. But it believes this will be more than offset by funding cost relief and improving collection efficiency.

Bandhan has also flagged that portfolio shifts toward secured assets can weigh on NIM in the near term. Still, management guidance remains for a favourable margin trajectory over the medium term. In an institutional research update dated 29 April 2026, the bank’s call highlights included guidance for NIM improvement of 10 to 20 basis points over the next 2 to 3 quarters.

Growth targets: aiming above an industry slowdown

Bandhan has set multiple growth markers across time frames. It has spoken about a 15% to 17% credit growth compound annual growth rate (CAGR) over the next three years, against an industry trend that saw loan growth decline from 20% to 9.8% over five quarters. Separately, management has guided for overall AUM growth of 15% to 17% in FY26, with microfinance growing more moderately due to guardrails and seasonality.

For FY27, guidance cited in the 29 April 2026 research note points to loan growth of 14% to 15%. Management has also reiterated that loan momentum is expected to pick up in both microfinance and non-micro segments after a period of subdued expansion.

Portfolio shift: secured book rises, microfinance moderates

The bank’s transition toward secured lending is already visible in reported mix changes. Secured assets have increased from 42% to 52% of the loan book in one disclosure, and separately from around 48% to 50% to 52% in management commentary. Bandhan expects secured share to rise further by another 5 to 6 percentage points, and has indicated it is ahead of its FY27 target of 55% secured share.

Microfinance has been the swing factor. The segment contracted 15% year-on-year in one update. Yet management has indicated the core microfinance book is stabilising, excluding the impact of asset sales to reconstruction companies, and should see better traction from the March quarter onward. Guidance in different updates put expected microfinance growth for FY26 in a moderate band, including 5% (in one outlook), 5% to 8% (EEB growth in FY26 guidance), and 8% to 10% (microfinance guidance shared in another interaction).

Asset quality: slippages ease and recoveries improve

Management has indicated asset quality trends are showing signs of normalisation, with fresh slippages moderating and recoveries improving across regions. It has also said the elevated provisioning seen in recent quarters is not expected to persist. As a medium-term marker, Bandhan has guided for a decline in credit costs with an FY27 exit run-rate of around 1.6% to 1.7%.

In FY26 commentary, the bank reiterated full-year credit cost guidance of 2.5%, with quarterly movement expected. One management interaction flagged a possible 3% credit cost in Q2 and a potential tapering to 2% by Q4, supported by improving delinquencies and a declining SMA 2 book.

Q1 FY26 snapshot: earnings and balance sheet metrics

Bandhan Bank reported net profit of ₹372 crore in Q1 FY26, down 65% year-on-year from ₹1,063 crore in Q1 FY25, and up 17% sequentially from ₹318 crore in Q4 FY25. Net interest income (NII) fell 8% year-on-year to ₹2,757 crore, while NIM was 6.4% compared with 6.7% in Q4 FY25.

Balance sheet growth stayed positive: gross advances rose 6% year-on-year to ₹134,000 crore, and total deposits rose 16% year-on-year to ₹155,000 crore. The bank reported gross NPA of 5.0% and net NPA of 1.4%. Capital adequacy ratio stood at 19.4%, with Tier I capital at 18.6%.

Key figures and guidance at a glance

What investors should track next

The bank’s near-term narrative is about execution: sustaining collections, reducing slippages, and lowering credit costs without sacrificing growth discipline. Management expects loan momentum to improve, including better traction in microfinance from the March quarter onward, while secured lending continues to take a larger share of incremental growth.

A second monitorable is how quickly funding cost relief flows through, especially as term deposit repricing and deposit rate cuts translate into lower cost of funds. Alongside this, the bank has flagged that repo moves can affect yields, but its base case is that funding cost relief and lower interest reversals should support margin stability.

Conclusion

Bandhan Bank’s medium-term plan centres on restoring return ratios, with ROA targeted at 1.3% to 1.5% by FY27 to FY28 as margins stabilise and credit costs ease. The bank is simultaneously steering growth toward secured lending while aiming for a measured revival in microfinance under regulatory guardrails. Investors will likely watch upcoming quarters for evidence of NIM improvement, lower slippages, and a sustained downtrend in credit costs in line with the bank’s FY26 and FY27 guidance.