/** blogpostTitle: Bandhan Bank Q1FY27: Diversification progress, but funding and tech costs reshape ROA expectations blogpostSlug: bandhan-q1fy27 blogpostCoverImageUrl: null blogpostCoverImageDescription: An ultra realistic corporate finance scene showing a clean modern desk with a laptop displaying a banking dashboard. The dashboard has two prominent visuals: a stacked bar chart of loan book mix with four segments labeled generically (EEB, housing, retail, wholesale) showing a larger secured portion, and a line chart showing GNPA and NNPA trending down. In the corner, a small gauge indicates capital adequacy around 18 percent. The background is a softly blurred bank branch interior with no logos or text, neutral lighting, professional financial aesthetic. blogpostShortTitle: Bandhan Bank Q1FY27 costs and mix shift */

Bandhan Bank Q1FY27: Diversification progress, but funding and tech costs reshape ROA expectations

Bandhan Bank’s Q1FY27 update (quarter ended June 30, 2026) was a mixed read. The balance sheet continued to expand, asset quality metrics improved, and the shift toward a more diversified, secured portfolio stayed on track. But profitability remained under pressure due to higher operating costs and a less supportive funding environment.

For the quarter, the bank reported total income of ₹35.2 billion and profit after tax of ₹5.0 billion. Net interest income rose to ₹29.2 billion, helped by balance sheet growth and a stable net interest margin of 6.2%. However, non-interest income was lower versus last year, and operating expenses increased sharply, keeping operating profit at ₹13.6 billion.

Management was clear on the earnings call that the external environment has become more uncertain. The key factors highlighted were elevated funding costs despite no repo hikes, rising technology-related expenditures, and macro uncertainty linked to geopolitical developments and an unpredictable monsoon. These pressures have led the bank to temper its earlier timeline for achieving higher return ratios.

Portfolio mix: non-EEB momentum offsets seasonal softness

Gross advances stood at ₹1,555.6 billion as of June 30, 2026, up 16.4% year-on-year. The core theme of the last few years has been portfolio diversification away from a heavy dependence on microfinance style lending. That theme continued in Q1FY27.

The investor presentation shows Emerging Entrepreneurs Business (EEB) at ₹526.4 billion, while the non-EEB book reached ₹1,029.1 billion and grew 27.4% year-on-year. The secured mix improved to 56.8%.

Within the non-EEB segments, wholesale banking and retail assets remained the faster growing components. Wholesale banking advances were ₹512.8 billion as of June 2026, and retail assets were ₹161.0 billion. Housing finance was ₹345.4 billion.

Management reiterated that the bank wants EEB to be around one-third of the loan book, with calibrated growth focused on asset quality rather than only top-line expansion.

Financial summary (Q1FY27)

Note: Values are converted from the presentation tables (₹ in billion) into ₹ crore for comparability.

Deposits: deliberate bulk reduction, retail franchise strengthens

Total deposits were ₹1,648.9 billion at June 30, 2026. The quarter saw a sequential decline of 0.9%, which management attributed to a conscious decision to reduce high-cost bulk deposits.

The positive is that the underlying retail engine continued to improve. Retail deposits were ₹1,219.6 billion and grew 15.6% year-on-year. CASA ratio improved to 29.4%.

Management also stated that bulk deposits declined year-on-year and their share reduced meaningfully, reflecting a strategic shift toward a more granular and stable funding base. Retail deposits as a share of total deposits increased to 74%.

Asset quality: better headline ratios and proactive clean-up

The bank reported improved asset quality metrics in Q1FY27:

GNPA ratio was 3.1% and NNPA ratio was 0.9%. Provision coverage ratio was 71.1%, with the presentation noting PCR including security receipts at 74.3%.

The quarter’s NPA movement table shows fresh slippages of ₹10.8 billion and reductions through recoveries, upgrades, technical write-offs, and an ARC sale. Management said the bank sold around ₹291 crore of housing NPAs to an ARC and also undertook technical write-offs, supporting the improvement in reported NPAs.

Within EEB, management acknowledged seasonal pressures typical of the first quarter, including the impact of holidays in April. The presentation indicates that EEB collection efficiency including arrears for the month of June was 98.5% (excluding NPAs), while the quarter collection efficiency excluding arrears improved.

Profitability: stable NIM, but opex is the drag

A key feature of Q1FY27 was the stability in NIM at 6.2%, despite management’s comments about funding cost headwinds. Yield on advances and cost of funds (excluding capital) implied a spread of 5.6% for the quarter.

But the cost line was the biggest swing factor. Operating expenses rose to ₹21.7 billion in Q1FY27, up 19.4% year-on-year. Management attributed this increase to higher technology spending, employee-related costs, and a one-time gratuity provision of ₹61 crore due to changes linked to the new wage code.

Non-interest income also declined year-on-year to ₹6.0 billion. The bank explained that the prior year quarter included a large treasury gain, and that adjusted for treasury, underlying fee income would have shown growth.

The combination of these factors meant operating profit fell year-on-year, even as credit costs moderated to 1.8%.

Guidance and what changed: ROA timeline becomes less certain

The most important forward-looking update came from management’s commentary on return metrics.

Management said that the aspiration to reach ROA of 1.6% to 1.8% by the exit of Q4FY27 is now more challenging than earlier due to external factors such as elevated funding costs and higher technology expenses. They indicated that an ROA range of 1.2% to 1.4% at the exit of Q4FY27 would be probable, depending on how these macro factors evolve.

Other guidance points were reiterated during the call:

Credit growth guidance for FY27 remained around 14% overall, with EEB growth expected at 5% to 10% and non-EEB at 20% plus. Credit cost guidance remained at 1.6% to 1.8%.

This makes the bank’s near-term story more about execution on efficiency levers, rather than relying on a sharp improvement in margins.

Takeaways

Bandhan Bank’s Q1FY27 results show continued progress on the structural shift toward a more diversified and secured portfolio, alongside improving asset quality metrics. The retail deposit franchise is also strengthening, with a higher share of retail deposits and a gradually improving CASA ratio.

At the same time, management has acknowledged that profitability improvement is being held back by elevated funding costs and higher technology-driven operating expenses. This has led to a more conservative view on the ROA trajectory by exit of Q4FY27.

The next few quarters are likely to be judged on two visible levers: whether retail deposit momentum continues as bulk dependence reduces, and whether operating expense intensity starts to stabilise as technology investments begin to deliver productivity benefits.