Bandhan Bank has provided updated medium-term guidance following its recent management interaction, outlining a roadmap focused on improving profitability, strengthening asset quality, and rebalancing its loan mix. The bank expects a gradual but consistent recovery in key financial metrics through FY27, indicating that earlier stress in its unsecured lending portfolio is moderating.

The management has guided for a Return on Assets (ROA) of 1.6% to 1.7% by the end of FY27, with sequential improvement expected over the coming quarters. This is a notable target given that ROA is a key measure of banking efficiency and profitability. A steady climb toward this range would signal that earnings normalisation is gaining traction after a period marked by elevated credit costs and operational adjustments.

One of the primary drivers of this improvement is expected to be net interest margin expansion. The bank anticipates a further increase of 10 to 20 basis points in NIM over the next two to three quarters. Margin expansion in this range suggests better liability management, improved lending yields, or a favourable shift in loan mix. For Bandhan Bank, which has historically depended on higher-yield microfinance lending, this also reflects a more balanced approach toward risk and return.

Asset quality is another focus area in the guidance. The bank expects credit costs to moderate to 1.6% to 1.7% by the end of FY27, implying a decline from current elevated levels. Lower credit costs are critical for profitability recovery, as provisions for bad loans have been a key drag on earnings in recent years. The guidance indicates that management sees stabilisation in borrower behaviour and collections, particularly in segments that were earlier under stress.

On the growth front, Bandhan Bank is targeting credit growth of around 14% to 15%, coupled with an effort to improve deposit growth. This balance is important, as sustained loan growth without matching deposit accretion can pressure funding costs. The emphasis on deposits suggests that the bank is working to strengthen its liability franchise, which is essential for maintaining margin stability in a competitive interest rate environment.

A structural shift in the loan book is also nearing completion. The bank’s target to increase the share of secured loans to 58% by FY27 is almost achieved, with the current mix at around 56%. This transition reduces dependence on unsecured microfinance lending and lowers overall portfolio risk. A higher secured mix typically leads to more stable asset quality outcomes, albeit with slightly lower yields, reinforcing the bank’s move toward a more balanced risk profile.

Why this guidance matters is that it provides visibility into Bandhan Bank’s recovery trajectory. After facing asset quality pressures and regulatory scrutiny in previous periods, the bank’s ability to deliver on these targets will be closely monitored by investors. The management commentary, as reflected in its earnings call disclosures available through investor communications, signals confidence in both operational execution and macro stability in its core lending segments.

Market Impact on India

For the broader banking sector, Bandhan Bank’s guidance reflects a stabilising trend in microfinance-linked portfolios, which had faced volatility in recent years. A recovery in this segment could support credit growth in rural and semi-urban markets, contributing to broader financial inclusion and consumption demand.

Sector Impact

Within the banking and NBFC space, the shift toward secured lending and improved asset quality aligns with an industry-wide trend of risk recalibration. Banks with a higher unsecured exposure are increasingly moving toward diversification, and Bandhan’s progress could serve as a reference point for peers undergoing similar transitions.

Bull vs Bear Scenario

The bullish case rests on successful execution of margin expansion and credit cost reduction, which could drive a meaningful improvement in profitability and valuation rerating. A stronger secured portfolio mix adds stability to earnings.

The bearish view centres on execution risks. If deposit growth lags or asset quality improvements are slower than expected, margins and profitability may remain under pressure.

Risk Section

Key risks include slower-than-expected recovery in asset quality, competitive pressure on deposit mobilisation, and macroeconomic factors affecting borrower repayment capacity. Any reversal in rural credit trends or regulatory changes impacting microfinance could also influence performance.

Overall, Bandhan Bank’s guidance outlines a structured path toward profitability recovery, with a clear focus on improving margins, reducing risk, and strengthening its balance sheet composition.