ICICI Securities has reiterated its BUY call on Bandhan Bank, raising the target price to Rs 230 from Rs 175, implying a potential upside of approximately 28% from the current market price of Rs 179. Bandhan Bank has delivered a sharp turnaround in Q4FY26, marked by a significant decline in credit costs, improved asset quality, and a revival in loan growth—particularly within its EEB (microfinance) segment. Profitability surged sequentially, supported by stabilizing slippages and improving net interest margins. The bank is now positioning itself for sustained recovery, with management guiding for 14–15% loan growth and a return on assets of 1.6–1.8% by FY27. With a stronger balance sheet, declining stress formation, and improving operating metrics, Bandhan appears poised for a structural earnings rebound, making it an attractive play in the microfinance recovery cycle.

Re-rating Thesis: From Stress Cycle to Growth Revival

Bandhan Bank is transitioning from a stress-heavy phase to a growth-led recovery cycle. The latest quarterly performance underscores a decisive shift, with profitability rebounding sharply as credit costs normalize and asset quality stabilizes. The bank’s exposure to microfinance, once a source of volatility, is now emerging as a key lever for recovery as stress formation declines materially.

The upgrade in target valuation reflects improving fundamentals, with the stock now valued at approximately 1.3x FY28E ABV, signaling renewed investor confidence in its earnings trajectory.

Profitability Surge Driven by Lower Credit Costs

Sequential earnings recovery highlights improving operational health. Bandhan reported Q4FY26 PAT of Rs 5.3 billion, registering a remarkable 160% QoQ increase, largely aided by a sharp moderation in credit costs.

However, core operating profitability remained stable, indicating that the earnings surge was primarily driven by normalization of provisions rather than revenue expansion alone. The bank’s ability to sustain this trajectory will depend on maintaining asset quality discipline while scaling growth.

Loan Growth Reignites Across Segments

Balanced growth across EEB and secured segments is reshaping the loan book. Total advances grew 6% QoQ, driven by strong traction in retail (+17% QoQ) and SME (+12% QoQ) portfolios. Notably, the EEB segment—after multiple quarters of contraction—returned to growth with an 8% QoQ expansion.

Management has outlined a 14–15% loan growth target for FY27, with a calibrated mix between microfinance and secured lending. This balanced approach reduces concentration risk while preserving yield advantages.

Margin Expansion Signals Improving Earnings Quality

Net interest margins are stabilizing with scope for further upside. NIM improved by 30 basis points QoQ to 6.2%, supported by a decline in cost of deposits and improved lending yields.

The bank expects an additional 10–20 bps expansion in NIMs over the next few quarters, driven by deposit repricing and operational efficiencies. This margin resilience is critical as the bank gradually increases its secured loan mix, which typically carries lower yields.

Asset Quality: The Most Critical Turning Point

Sharp decline in slippages marks a structural improvement in risk metrics. Gross slippages declined 21% QoQ, with EEB slippages improving significantly to 5.1% from 7.5%.

Key asset quality indicators show stabilization:

New stress formation has become negligible, with SMA flows declining sharply—an early indicator of sustained asset quality improvement.

Microfinance Segment: From Weakness to Strength

EEB portfolio is stabilizing and regaining growth momentum. The microfinance book, which had been under pressure, is now witnessing:
Lower slippages
Improved collection efficiency (~98.9%)
Minimal new SMA formation

This segment is expected to contribute meaningfully to earnings recovery, especially as stress normalization continues across the industry.

Operational Costs and Efficiency Outlook

Short-term cost pressures remain, but normalization is expected. Operating expenses rose 10% QoQ, driven by one-off items such as PSLC costs and technology investments totaling approximately Rs 1.2 billion.

While these costs impacted near-term profitability, they are largely non-recurring, suggesting margin expansion potential in subsequent quarters.

Financial Performance Snapshot

Earnings are expected to more than double in FY27, reflecting normalization in provisioning and steady growth in core income streams.

Capital Position and Balance Sheet Strength

Strong capital adequacy provides growth headroom. The bank’s CET-1 ratio stands at 17.3%, offering sufficient buffer to support credit expansion.

Additionally, the transition to expected credit loss (ECL) norms is manageable, with a limited impact on capital ratios over time.

Valuation and Investment Levels

Upside potential remains attractive amid improving fundamentals.
Current Price: Rs 179
Target Price: Rs 230
Upside Potential: ~28%

Key Support Levels: Rs 160 – Rs 165
Key Resistance Levels: Rs 195 – Rs 205

The stock is trading at a discount to historical valuations, offering an attractive entry point as earnings visibility improves.

Key Risks to Monitor

Despite improving fundamentals, certain risks remain:
Higher-than-expected stress in microfinance portfolio
Slower-than-anticipated loan growth recovery
Margin pressure due to rising competition or funding costs

Strategic Outlook: Positioned for Structural Rebound

Bandhan Bank is entering a new phase of disciplined growth and profitability recovery. With improving asset quality, normalized credit costs, and strong capital buffers, the bank is well-positioned to deliver sustainable returns.

The management’s guidance of 1.6–1.8% RoA by FY27 exit reflects confidence in the underlying business transformation.

Disclaimer: Investors should conduct their own due diligence and consider their risk appetite before making investment decisions. Market conditions and financial performance may change, impacting stock valuations.