Bandhan Bank has been suggested as Accumulate Call by Deven Choksey Research. The private sector bank remains an intriguing albeit cautiously monitored bet for medium term investors. The bank's Q2 FY26 results registered a weaker performance on profitability metrics due to yield recalibrations and elevated provisions, tempered by a robust increase in deposits and a secured loan portfolio gaining traction. Earnings showed a significant dip, while asset quality stayed steady amid a strategic shift towards secured lending and non-EEB advances. Despite short-term pressures, the bank’s improved granularity in deposits, steady CASA mix, and a strong capital adequacy ratio underpin a positive medium-term outlook. Deven Choksey Research reiterates an ACCUMULATE stance with a target price of Rs 172, endorsing a strategy of cautious optimism for investors.

Deven Choksey Research Recommends Accumlate Rating

- The research house maintains an ACCUMULATE rating on Bandhan Bank with the current market price at Rs 158 and a target price of Rs 172. - This implies an upside potential of approximately 8.9% from the current levels. - The recommendation is grounded in the expectation of gradual recovery starting in H2 FY26, driven by improved asset quality and normalization of credit costs.

Q2 FY26 Performance Recap

- Bandhan Bank’s net interest income (NII) declined 12.2% year-over-year to Rs 25,886 million, falling short of expectations (Rs 29,483 million). - Deposits grew steadily by 11% YoY to Rs 1,580,750 million, while gross advances increased by 7% YoY to Rs 1,345,920 million. - The secured loan segment notably expanded by 25% YoY, now constituting 55% of the overall loan book, up from 47% the previous year. - Retail and wholesale portfolios witnessed strong growth at 66% and 27% YoY respectively, though the Emerging Entrepreneurs Business (EEB) portfolio contracted 13% YoY. - Profit after tax (PAT) plunged to Rs 484 million during H1 FY26 from Rs 2,001 million due to markedly higher provisioning costs.

Asset Quality and Provisioning

- Asset quality remained stable with gross non-performing assets (GNPA) at 5.0% and net NPA at 1.4%. - The Provision Coverage Ratio (PCR) stayed robust at 73.7%, cushioning potential credit shocks. - Collection efficiency in EEB loans improved marginally to 98%, signaling early signs of recovery in stressed segments. - Elevated provisioning (Rs 2,299 million vs Rs. 1,129 million YoY) was a significant drag on profitability but lays groundwork for future stability.

Strategic Shift Towards Secured and Granular Lending

- The bank is consciously moving towards a secured advances portfolio to fortify credit quality. - Non-EEB advances now constitute 63% of total loans, up from 55% a year ago, reflecting disciplined credit underwriting. - CASA deposits stood firm at Rs 44,211 million, with a stable CASA ratio of 28%, and combined CASA plus retail term deposits ratio at a healthy 71%. - Initiatives such as CASA campaigns and corporate salary account acquisitions bolster deposit granularity and cost-efficiency.

Profitability and Margin Outlook

- Net interest margin (NIM) compressed to 5.8% in Q2 owing to repricing pressure and increased slippages. - Operating expenses rose modestly, pushing the cost-to-income ratio higher to 58.2%, indicating short-term efficiency challenges. - Management expects a NIM recovery from Q4 FY26 as term deposits reprice following rate cuts and operating leverage benefits kick in. - ROA and ROE are forecasted to improve gradually, supported by credit cost normalization and the continued shift to secured lending.

Capital and Liquidity Position

- Bandhan Bank boasts a solid capital adequacy ratio (CAR) of 18.6%, well above regulatory minima, providing ample buffer against future uncertainties. - Liquidity remains comfortable, underpinning the bank’s ability to sustain growth in secured retail and housing loans. - Borrowing levels and overall liabilities are managed prudently to maintain robust balance sheet resilience.

Key Stock Levels and Targets for Investors

Investment Thesis and Outlook

- Bandhan Bank is navigating a transitional phase where margin pressures and elevated provisions weigh on near-term earnings. - Encouragingly, the bank’s shift towards a secured loan portfolio and strategic focus on granular, low-cost deposits underpin an improving foundation. - EEB stress is expected to abate in the next 12 months as sectoral guardrails strengthen, bolstering asset quality. - Improvement in SMA trends and stable credit metrics indicate early signs of turnaround. - The bank’s robust capitalization and growth in retail liabilities provide operational flexibility. - Investors are advised to accumulate with a medium-term horizon, targeting Rs 172 over 12 months, riding on normalization of credit costs and asset quality stabilization.

Risks to Monitor

- Persistent stress in the EEB portfolio beyond management’s forecast timeline could dampen recovery. - A prolonged yield reset or slower-than-expected repricing of deposits might continue to exert margin pressure. - Macroeconomic or regulatory changes impacting credit growth or asset classification norms remain potential headwinds.
Finally, Deven Choksey Research endorses a prudent but positive stance on Bandhan Bank, balancing current challenges with a robust structural shift aimed at healthier profitability and asset quality.