Bandhan Bank Targets 1.6–1.7% ROA by FY27 Exit

Bandhan Bank Limited — Q4 FY26 Earnings Call (Quarter & FY ended Mar 31, 2026)

1. Overall Tone of Management: Optimistic

• Management repeatedly highlights “improvement across many key parameters”, “encouraging momentum”, and “constructive” asset quality trends.
• They express confidence in “sustainable, profitable growth over the medium term” and provide more concrete forward-looking targets (ROA, NIM, credit cost range).

2. Key Themes from Management Commentary

• Balance sheet repositioning / portfolio mix
• Advances grew 13% YoY to ~INR 1.54 lakh cr.
• Secured book growth strong (~25% YoY) and now ~56% of advances; management says secured mix target is being met earlier than planned.
• EEB: “stabilized” with positive sequential growth (EEB +8% QoQ) while acknowledging industry-wide yearly contraction.
• Liability franchise quality
• CASA growth strong; CASA ratio improved to ~29.3% (up ~200 bps QoQ).
• Reduced high-cost bulk deposits: bulk deposits down ~7% YoY, share down to ~26%; management emphasizes granularity and non-callable bulk (~89%).
• Profitability drivers
• NIM improved sequentially to 6.2% (deposit cost down ~23 bps QoQ; yields up ~14 bps).
• Other income / fee income pickup: processing fees and third-party products income rising (third-party distribution income +34% YoY; +12% QoQ other income).
• Asset quality improvement
• Slippages down sharply: gross slippages INR 1,028 cr vs INR 1,314 cr in Q3.
• Early delinquency improved: 0–90 DPD pool ~3.1% vs 4.6% prior quarter (notably SMA-0).
• Credit cost moderated: ~2% for the quarter; FY26 credit cost ~3%.
• Cost discipline / expense normalization
• Opex elevated in Q4 due to non-recurring items (PSLC cost and IT), but FY26 opex growth contained; management reiterates focus on operating leverage.
• Risk management & recovery emphasis
• Even with improving metrics, they stress recovery efforts and moving toward medium-term credit cost aspirations.

3. Q&A Analysis

Theme A: CASA / Current Account growth mechanics & targets

• Core questions
• What drove strong average current account (CA) growth?
• Is there a target CA ratio / CASA milestone?
• Management response
• CA growth attributed to granular current account affluent segment, plus trust/flows from staff department and deposit initiatives.
• No fixed CA % target yet; they referenced CASA last year ~31% and said they will “crystallize” next target after reaching milestones.
• Notable / evasive elements
• No explicit CA ratio target; guidance stayed qualitative (“continue to improve”).

Theme B: PSL shortfall / PSL classification and PSL cost reduction

• Core questions
• How will they neutralize PSL shortfall and move away from purchasing PSLC?
• What portion of EEB agriculture loans qualifies for PSL and how is it changing?
• Management response
• PSL cost was high; Q4 incurred ~INR 150 cr (about INR 60 cr higher QoQ).
• They claim process revamp: PSL-qualifying share in EEB increased from ~10–15% a year ago to ~40% now, expected to rise to 60–65%.
• Expect PSL cost to fall by ~50% vs FY26, and “next year… almost neutralized or coming to zero.”
• Strength / risk
• Strong specificity on 40% → 60–65% and cost reduction timeline, but still depends on RBI qualification outcomes and operational capture in systems.

Theme C: ROA / NIM / margin trajectory for FY27

• Core questions
• What should ROA be for FY27 (and how to get there)?
• Will NIM keep improving or face seasonality/moderation?
• How much of margin improvement is from credit cost vs NIM vs other income vs opex?
• Management response
• Explicit ROA target: improve toward 1.6%–1.7% by exit of FY27 (give or take ~10 bps).
• Drivers cited: credit cost reduction (from ~2% quarter level to ~1.6–1.7%), NIM up (6.2% now; expect +10–20 bps over 2–3 quarters), and other income (processing/third-party).
• NIM: guided ~10–20 bps improvement over next 2–3 quarters; also said NIM exit FY27 around ~6% on total assets (and ~6.5% on earning assets basis).
• Notable / evasive elements
• They acknowledged external risks (war impact) and used “best effort” language.
• Some Q&A around ROA waterfall remained high-level (no full quantified bridge).

Theme D: ECL / RBI circular impact on CRAR and credit cost

• Core questions
• Steady-state credit cost impact of ECL (not one-time transition).
• How much is transition impact and how will it affect CRAR?
• Standard asset provisioning levels for unsecured portfolio.
• Management response
• Transition estimate: ~INR 1,250 cr (Dec 2025 portfolio basis), spread over 5 years → ~INR 250 cr/year.
• CRAR impact: ~16–17 bps per year for 5 years (based on transition).
• Flow impact still being computed; no final number.
• Standard asset provisioning: they cited ~INR 1,072 cr provisions on standard assets; described additional provisioning above norms (e.g., EEB 1% maintained vs 0.25% required).
• Notable / evasive elements
• Flow impact not quantified yet—explicitly “don’t have a number as of yet.”

Theme E: Credit cost / slippages outlook and “base quarter”

• Core questions
• Should FY27 credit cost be assumed around 1.5–1.6%?
• Will slippages hold at Q4 levels or inch up (e.g., MFI)?
• Are they done with NPA pool sales?
• Management response
• Kept guidance unchanged: ROA 1.6–1.7% exit FY27 and credit cost guidance toward 1.6–1.7% by exit FY27 (Q4FY27).
• Slippages expected to hold at these levels if collection efficiency remains high; they cited collection efficiency ex-bucket ~99.6% and SMA improvements.
• NPA sale: “option is available” but no immediate plans; ARC sale not expected every quarter.
• Notable / evasive elements
• They repeatedly caveat with war/externalities and “wary” language.

Theme F: Deposit competition / TD repricing / margin sensitivity

• Core questions
• Are deposit rates rising due to competition?
• How much further cost-of-funds benefit is expected?
• Management response
• Deposit competition is “definitely intense”; March saw rate increases by competitors.
• They expect further NIM improvement due to term deposit renewals: “another 10 to 20 bps over next 2–3 quarters.”
• LCR: period-end ~131%, average ~130–140%; decline attributed to bulk deposits coming down.

Theme G: Secured mix target and NIM impact

• Core questions
• Are they targeting higher secured share by FY27 exit? What %?
• Will NIM fall as secured mix rises?
• Management response
• Secured/unsecured target: 58/42 by FY27 exit; they claim already near it (Q4 at 56% secured).
• They argue NIM impact limited: EEB delinquency is the main NIM drag historically; if delinquency improves, NIM won’t be materially impacted.
• They also claim NIM + other income trajectory targeted around ~7.5% on assets (qualitative but specific combined target).
• Notable / unusually strong answer
• They provided a combined NIM+other income framing to defend NIM stability despite mix shift.

4. Guidance / Outlook

Explicit guidance (quantitative)

• ROA (FY27 exit): 1.6%–1.7% (give or take ~10 bps).
• NIM trajectory:
• Sequential improvement: expect +10 to 20 bps over next 2–3 quarters.
• Exit FY27: ~6% on total assets (and ~6.5% on earning assets basis).
• Credit cost (FY27 exit): guidance maintained toward ~1.6%–1.7% (they reiterated this multiple times).
• PSL cost reduction:
• Expect PSL cost to come down by ~50% vs FY26 in FY27.
• “Next year… almost neutralized or coming to zero” (qualitative but tied to timeline).
• Secured mix (FY27 exit): 58% secured / 42% unsecured; Q4 already ~56% secured.
• ECL transition impact (CRAR):
• ~INR 1,250 cr transition (Dec 2025 basis) → ~INR 250 cr/year over 5 years.
• ~16–17 bps CRAR impact per year for 5 years (transition).

Implicit signals (qualitative)

• Asset quality: management expects slippages to hold and possibly improve marginally, contingent on collection efficiency and external shocks.
• Other income: they expect continued momentum in processing fees and third-party products income as disbursements pick up.
• Cost: they expect opex normalization after non-recurring Q4 items (PSLC/IT), supporting operating leverage.

5. Standout Statements (directly revealing)

• Asset quality improvement magnitude
• “Gross slippages… declined sharply to INR 1,028 crores…”
• Early delinquency improvement
• “0 to 90 DPD pool declined to about 3.1%… down from 4.6%…”
• ROA target clarity
• “gradually keep on improving the ROA towards… 1.6% to 1.7% ROA by the exit of FY27”
• PSL qualification ramp
• “currently… 40%… covered… going forward… 60%, 65%”
• ECL transition quantified
• “transition… roughly around INR 1,250 crores… INR 250 crores per year impact… 16 to 17 basis points…”
• NIM defense despite secured mix
• “56% to 58% will not have much impact on the NIM…”
• External risk acknowledgement
• “we are wary… implications of the war… we don’t know the impact…”
• NPA sale stance
• “Option is neither closed nor… crystallized… no immediate plans”

6. Red Flags / Positive Signals

Red flags
– ECL flow impact not quantified: “still being computed… don’t have a number as of yet.”
– Multiple “best effort / contingent” statements around war/externalities.
– No explicit CA ratio target despite strong CASA narrative (targets remain somewhat open-ended).
– ROA waterfall not fully quantified (credit cost, NIM, other income, opex contributions discussed but not fully bridged).

Positive signals
– Clear sequential improvement across: NIM, slippages, SMA buckets, collection efficiency.
– Deposit quality actions are tangible (bulk down, CASA up, non-callable bulk visibility).
– Specific operational levers: PSL qualification process changes with measured uplift (10–15% → 40% → 60–65%).
– Guidance maintained despite improved quarter—suggests management believes improvements are durable.

7. Historical Comparison & Consistency Analysis (vs prior 3 calls provided)

a. Change in Tone Over Time

• Q4FY25 (Apr 2025): more cautious; emphasized MFI stress, elevated credit costs, and “moderation” expectations.
• Q2FY26 (Oct 2025): explicitly acknowledged “below than our internal expectations”; slippages elevated; margins pressured by repo cut.
• Q3FY26 (Jan 2026): tone improved; “strengthening across core businesses,” EEB stabilizing, secured mix strengthening.
• Q4FY26 (Apr 2026): most optimistic—management claims broad-based improvement and provides clearer targets (ROA exit FY27, NIM exit FY27).
• Classification: More Optimistic than prior calls.
• Shift is driven by actual metric improvements (slippages down, SMA down, NIM up, credit cost down).

b. Tracking Past Commitments vs Outcomes

1) CASA / deposit granularity push
– Past statement (Q2FY26 Oct 2025): “renewed momentum in CASA” and reducing bulk deposits.
– Outcome in Q4FY26: CASA ratio ~29.3%; bulk share ~26%; retail mix 74%.
– Flag: ✅ Delivered (directionally and quantitatively improved).

2) EEB stabilization / slippage improvement
– Past statement (Q2FY26 Oct 2025): expected correction in EEB over coming quarters; slippages elevated but SMA-1/2 improving.
– Outcome in Q4FY26: slippages down to INR 1,028 cr; EEB slippages INR 690 cr; 0–90 DPD 3.1%.
– Flag: ✅ Delivered (strong improvement vs earlier elevated levels).

3) ROA glide path
– Past statement (Q4FY25 Apr 2025): glide path toward 1.8–1.9% ROA over 2–3 years.
– Outcome in Q4FY26: management now targets 1.6–1.7% by exit FY27 (nearer-term, more specific).
– Flag: ✅ Delivered / strengthened (more concrete and closer timeline).

4) Credit cost guidance
– Past statement (Q2FY26 Oct 2025): credit cost guidance toward ~1.5–1.6% overall by FY27 exit (and higher for EEB).
– Outcome in Q4FY26: credit cost for quarter ~2%, and guidance maintained toward 1.6–1.7% by exit FY27.
– Flag: ⏳ Delayed / still in progress (not yet at exit FY27; but trend improved).

c. Narrative Shifts

• From “transition pain” to “sustainable improvement”:
• Earlier calls emphasized transition and elevated stress; now they emphasize “sustainable, profitable growth” and “green shoots.”
• PSL cost narrative emerges strongly in Q4FY26
• PSL shortfall and PSLC purchase cost were discussed earlier (labor code, repo impacts), but Q4FY26 provides a detailed PSL qualification ramp and cost reduction plan.
• ECL/ECLGS discussion becomes more concrete
• Q2FY26 had uncertainty around ECL figures; Q4FY26 provides quantified transition and provisioning stance.

d. Consistency & Credibility Signals

• Credibility: Medium–High
• Management’s story aligns with improving metrics (slippages, SMA, NIM, deposits).
• However, some items remain unresolved/uncertain (ECL flow impact; external war impact; no full ROA bridge).
• They maintain guidance rather than raising it aggressively—suggesting restraint.

e. Evolution of Key Themes

• Demand / collections: Improving trajectory across calls; Q4FY26 shows the strongest collection efficiency numbers.
• Margins / funding cost: Repo cut pressure in Q2FY26; gradual improvement by Q3FY26; Q4FY26 shows clearer NIM expansion and deposit cost reduction.
• Asset quality: Elevated slippages in Q2FY26; stabilization in Q3FY26; sharp improvement in Q4FY26.
• Regulatory overlays: Labor code impact earlier (gratuity provision); ECL now quantified; PSL qualification now operationalized.

f. Additional Insights (cross-period intelligence)

• “One-offs” are increasingly quantified (PSLC cost, IT expenses, PSLC-related costs) which improves transparency vs earlier periods where drivers were more general.
• Management is shifting from “stabilize EEB” to “optimize secured mix + other income” as the primary ROA lever—consistent with the secured mix target being met “earlier than planned.”
• Risk language persists but is more controlled: war/externalities acknowledged, but management’s confidence is higher due to improved collection efficiency and SMA trends.