Deven Choksey Research has issued an "ACCUMULATE" rating on Bandhan Bank, as the private banking major undergoes a pivotal transformation amidst evolving sector dynamics and persistent portfolio stress. The latest report, dated July 25, 2025, offers a nuanced view of Bandhan Bank’s Q1FY26 performance, walking the tightrope between cautious optimism and the sobering reality of ongoing challenges in the bank’s core lending verticals. Key financials, a revised target price, and granular sectoral insights shape this must-read story for discerning investors.

Bandhan Bank—Resilient Amidst Realignment

Bandhan Bank, steered by a strategic recalibration, delivered Q1FY26 results marked by disappointing earnings yet notable balance sheet resilience. Deven Choksey Research, while acknowledging the bank's robust deposit growth and progress in shifting toward secured lending, flags ongoing stress in the Emerging Entrepreneurs Business (EEB) segment and margin pressures. The "ACCUMULATE" rating balances a target of Rs198 with the recognition that the road ahead features both opportunities and substantial risks. Investors are advised to weigh near-term volatility against emerging strengths in Bandhan’s evolving business model.

Robust Retail Deposit Mobilization Repositions Funding Base

The bank posted an impressive 16.1% YoY rise in total deposits, reaching Rs1,547 billion, a testament to its vigorous pursuit of granular retail liabilities. This acceleration was primarily propelled by focused initiatives such as the ‘One Bandhan’ campaign and a relentless drive to strengthen retail term deposit mobilization. The deposit growth notably outstripped advances, underscoring a recalibrated liability strategy well aligned with evolving sector norms.

CASA (Current Account Savings Account) deposits, however, shrank to 27.1% from 33.4% a year ago, as the bank leaned aggressively into term deposits. Still, the blend of CASA and retail term deposits remained stable at 68.2%, buffering the funding profile against abrupt shocks. Retail term deposits impressively surged 34% YoY, reflecting robust franchise-level execution.

Lending Book Under Pressure as Bank Realigns to Secured Assets

Gross advances saw tepid 6.4% YoY growth, closing Q1FY26 at Rs1,336 billion. The drag was most evident in the EEB portfolio, which contracted nearly 7% sequentially—an intentional move by management to mitigate concentration risk and adjust to shifting credit trends in microfinance.

The portfolio’s risk complexion is evolving rapidly. Secured loans now comprise 52.1% of total advances, marking a bold 29% YoY leap as the bank pivots towards safer asset classes like housing, commercial vehicle, and gold loans. Bandhan’s non-EEB portfolio ballooned 27% YoY and represents about 60% of advances, revealing a meaningful departure from its recent micro-credit-heavy model.

Sustained Portfolio Stress and Rising Provisions Cloud Profitability

Asset quality remains a watchpoint, with gross NPAs rising to 5.0% and net NPAs to 1.4%. Despite management’s aggressive clean-up—INR 10,470 million in technical write-offs for Q1, mostly from the EEB segment—the balance sheet still bears the scars of Covid-legacy impairments and ongoing recoverability challenges.

Provisions nearly doubled YoY, tallying INR 11,469 million, further depressing the bottom line. Net profit sharply contracted by 65% YoY (Rs3,720 million), despite a moderate sequential improvement. While annualized credit cost moderated to 3.5% from 3.9% in Q4FY25, the normalization in slippage and recoveries offers only incremental comfort.

Operational Efficiency and Capital Buffers Remain Strong

The institution’s cost-to-income ratio eased to 52.1% after peaking in the previous quarter, thanks to disciplined expense management. Meanwhile, the Capital Adequacy Ratio (CAR) improved to 19.4%, with Tier-1 capital at 18.6%. These metrics highlight Bandhan’s strong operational backbone and capacity to absorb potential credit shocks—crucial in this transition period.

Valuation Rationale: Target Price, Peer Comparison, and Recommendation

Deven Choksey Research assigns a fair value multiple of 1.1x FY27E Adjusted Book Value Per Share (ABVPS), setting a target of Rs198 against the prevailing market price of Rs184.

The stock is a tactical "ACCUMULATE," not an outright BUY. The rating reflects limited upside (7.6% to target), recognition of persistent margin headwinds, and slower growth than sector peers. The recalibration toward secured lending and strategic government/institutional deals could add long-term value, but investors must be mindful of continued EEB stress and near-term profitability pressures.

Key Triggers and Risks: What Should Investors Watch For?

Triggers for positivity:

Sustained improvement in recoveries and a downward trend in provisioning.

Further acceleration in secured asset formation and successful execution of cost rationalization.

Continued expansion of government and institutional banking mandates.

Risks undermining the bull case:

Relapse or worsening stress in the EEB/microfinance segment.

Inability to consistently sustain strong net interest margins amidst deposit repricing pressures.

Unexpected regulatory or macro environment shocks affecting asset quality.

Bottomline: Tactical Play for Disciplined Investors

While Bandhan Bank's pivot towards a more diversified, secured and stable banking franchise is underway, the institution remains challenged by legacy asset quality issues and muted profit growth. Deven Choksey Research’s stance of "ACCUMULATE" with a target of Rs198 is an invitation for patient, risk-aware investors to consider gradual exposure as the turnaround story matures. The next few quarters will be critical in validating management’s strategy and lending further clarity on this evolving financial saga