The stock closed at ₹170.50 on October 30, down 1.02% from the previous close, reflecting subdued market sentiment following the results announcement. Trading in a 52-week range of ₹128.15 to ₹192.45, the bank's shares remain 11.41% below their yearly peak, underscoring persistent pressure on valuation multiples.
The September 2025 quarter marks a concerning inflection point for Bandhan Bank, as the institution grapples with a confluence of headwinds including elevated provisioning requirements, compressed margins, and deteriorating loan book quality. Total income declined 4.86% sequentially to ₹5,900.27 crores, whilst provisions and contingencies surged to ₹1,152.56 crores, effectively eroding operational profitability.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 | Mar'24 |
|---|---|---|---|---|---|---|---|
| Total Income (₹ Cr) | 5,900 | 6,201 | 6,133 | 6,591 | 6,109 | 6,063 | 5,890 |
| QoQ Change (%) | -4.86% | +1.11% | -6.94% | +7.88% | +0.75% | +2.94% | — |
| Net Profit (₹ Cr) | 111.87 | 371.96 | 317.90 | 426.49 | 937.45 | 1,063.46 | 54.63 |
| QoQ Change (%) | -69.92% | +17.01% | -25.46% | -54.51% | -11.85% | +1846.66% | — |
| Gross NPA (%) | 5.02 | 4.96 | 4.71 | 4.68 | 4.68 | 4.23 | 3.84 |
| Net NPA (%) | 1.37 | 1.36 | 1.28 | 1.28 | 1.29 | 1.15 | 1.11 |
Financial Performance: Sharp Margin Compression
The bank's core lending operations exhibited significant stress during Q2 FY26. Interest earned fell to ₹5,353.83 crores from ₹5,475.61 crores in the preceding quarter, representing a 2.23% sequential decline. More worryingly, interest income on advances contracted sharply to ₹4,475.38 crores from ₹4,732.37 crores in Q1 FY26, a 5.43% quarter-on-quarter drop that signals potential portfolio quality deterioration.
Net interest income (NII), the lifeblood of banking profitability, declined 6.12% sequentially to ₹2,588.56 crores and registered an 11.77% year-on-year contraction from ₹2,933.73 crores in Q2 FY25. This represents the lowest quarterly NII figure in the trailing eight quarters, raising concerns about the sustainability of the bank's core earnings power. Interest expended rose to ₹2,765.27 crores, up 1.73% from the previous quarter, reflecting the challenging deposit mobilisation environment.
Operating profit before provisions and contingencies plummeted 21.46% quarter-on-quarter to ₹1,310.35 crores, whilst provisions remained stubbornly elevated at ₹1,152.56 crores. The provision coverage ratio stood at 73.7% as of June 2025, indicating the bank maintains reasonable buffers, yet the absolute quantum of provisioning requirements continues to weigh heavily on bottom-line profitability.
⚠ Key Concern: Margin Pressure Intensifies
The bank's net interest margin data for Q2 FY26 was not disclosed, but the June 2025 quarter showed NIM at 6.4%, down from 7.6% in June 2024 and March 2024. This 120 basis point compression in margins over four quarters represents a structural challenge that requires immediate management attention. The CASA ratio has deteriorated sharply to 27.1% in June 2025 from 37.1% in March 2024, indicating a fundamental shift in the deposit mix towards higher-cost term deposits.
Asset Quality Analysis: NPAs Reach Multi-Quarter Highs
The September 2025 quarter witnessed a troubling deterioration in asset quality metrics. Gross non-performing assets (NPAs) climbed to 5.02%, the highest level in the trailing eight quarters and up from 4.96% in June 2025. Net NPAs edged higher to 1.37% from 1.36% in the previous quarter, marking a consistent upward trend from the 1.11% recorded in March 2024.
The absolute gross NPA ratio has increased by 118 basis points year-on-year from 4.68% in September 2024, whilst net NPAs have risen by 8 basis points over the same period. This divergence suggests that whilst the bank is maintaining provisioning discipline, the underlying loan book quality continues to face stress, particularly in its microfinance and small business lending segments.
Asset Quality Snapshot
Gross NPA Trend: 3.84% (Mar'24) → 4.23% (Jun'24) → 4.68% (Sep'24) → 4.71% (Mar'25) → 4.96% (Jun'25) → 5.02% (Sep'25)
Net NPA Trend: 1.11% (Mar'24) → 1.15% (Jun'24) → 1.29% (Sep'24) → 1.28% (Mar'25) → 1.36% (Jun'25) → 1.37% (Sep'25)
The steady climb in both gross and net NPA ratios over the past six quarters signals persistent stress in the loan portfolio, requiring heightened monitoring of collection efficiency and recovery mechanisms.
Advances stood at ₹1,31,987.32 crores as of March 2025, representing an 8.96% year-on-year increase from ₹1,21,136.78 crores in March 2024. However, this growth has come at the cost of asset quality, with the advance-to-deposit ratio at 99.50%, indicating the bank is fully deployed on the lending front with limited room for further portfolio expansion without corresponding deposit growth.
Operational Challenges: Return Metrics Under Pressure
Return on equity (ROE), a critical measure of capital efficiency, stands at 8.43% on a trailing basis, significantly below the peer group average and well short of the bank's historical performance levels. This modest ROE reflects the dual challenge of compressed margins and elevated credit costs eating into profitability. Return on assets (ROA) averaged 1.32% over the assessment period, declining to 1.07% in the latest reported period.
The bank's operating profit to assets ratio averaged 9.14%, indicating reasonable operational efficiency, yet the translation to bottom-line profitability remains constrained by provisioning requirements. The cost-to-income ratio averaged 40.14%, which whilst competitive within the banking sector, has failed to offset the impact of margin compression and asset quality stress.
⚠ Critical Issue: ROE Deterioration
Bandhan Bank's ROE of 8.43% places it in the lower quartile of private sector banks and well below the industry benchmark of 12-15% for healthy banking franchises. The bank's capital efficiency has been hampered by elevated credit costs, with provisions consuming a significant portion of pre-provision operating profit. Management must demonstrate a clear path to improving ROE above 12% to justify the current valuation multiples and attract long-term institutional capital.
Deposit Franchise: CASA Mix Deterioration Continues
One of the most concerning trends for Bandhan Bank is the persistent erosion of its current account savings account (CASA) ratio. The CASA ratio stood at 27.1% in June 2025, down sharply from 33.4% in June 2024 and 37.1% in March 2024. This 1,000 basis point decline over five quarters represents a fundamental shift in the bank's funding profile towards more expensive term deposits.
Total deposits reached ₹1,51,212.50 crores as of March 2025, up 11.84% year-on-year from ₹1,35,201.99 crores, indicating healthy deposit mobilisation in absolute terms. However, the quality of deposits has deteriorated, forcing the bank to compete more aggressively on interest rates to attract term deposits, thereby compressing net interest margins.
| Metric | Mar'24 | Jun'24 | Sep'24 | Dec'24 | Mar'25 | Jun'25 |
|---|---|---|---|---|---|---|
| CASA Ratio (%) | 37.1 | 33.4 | 33.2 | 31.7 | 31.4 | 27.1 |
| Sequential Change (bps) | — | -370 | -20 | -150 | -30 | -430 |
Industry Leadership: How Bandhan Bank Compares to Peers
Within the private sector banking landscape, Bandhan Bank occupies a unique position as a microfinance-originated universal bank. However, its current financial metrics place it at a competitive disadvantage relative to established peers. The bank's price-to-earnings ratio of 13.37x appears reasonable on the surface, trading at a discount to the peer group average, yet this valuation reflects market concerns about earnings sustainability and growth trajectory.
| Bank | P/E (TTM) | P/BV | ROE (%) | Div Yield (%) |
|---|---|---|---|---|
| Bandhan Bank | 13.37 | 1.13 | 8.43 | 0.88 |
| IDBI Bank | 10.97 | 1.56 | 14.26 | 2.15 |
| Yes Bank | 24.86 | 1.42 | 5.70 | — |
| IDFC First Bank | 44.13 | 1.39 | 3.15 | 0.23 |
| IndusInd Bank | NA (Loss Making) | 0.97 | -0.92 | — |
| Federal Bank | 15.19 | 1.65 | 10.85 | 0.51 |
Bandhan Bank's ROE of 8.43% positions it ahead of Yes Bank (5.70%) and IDFC First Bank (3.15%), but significantly behind IDBI Bank's robust 14.26% and Federal Bank's healthy 10.85%. The bank's price-to-book value of 1.13x trades at a discount to most peers, reflecting market scepticism about the quality of the loan book and future earnings potential.
The dividend yield of 0.88% is modest but sustainable, with the bank having declared a dividend of ₹1.50 per share with an ex-dividend date of August 14, 2025. This represents a conservative payout policy aimed at preserving capital for provisioning requirements and regulatory buffers.
Valuation Analysis: Fair Value Despite Operational Headwinds
At the current market price of ₹170.50, Bandhan Bank trades at a P/E multiple of 13.37x trailing earnings and 1.13x book value. The valuation has been downgraded from "Attractive" to "Fair" as of October 27, 2025, reflecting the market's reassessment of the bank's earnings quality and growth prospects following the disappointing Q2 FY26 results.
The bank's market capitalisation of ₹27,821 crores positions it as a small-cap player within the banking sector, with 161.1 crore shares outstanding. The book value per share stands at ₹151.21, implying the stock trades at a modest 12.8% premium to book value, which appears reasonable given the elevated NPA levels and compressed return metrics.
Historical valuation patterns reveal that Bandhan Bank has traded between "Very Attractive" and "Fair" valuations over the past year, with the most recent downgrade on October 27, 2025. The 52-week trading range of ₹128.15 to ₹192.45 suggests significant volatility, with the current price 11.41% below the yearly high and 33.05% above the yearly low.
"Whilst the valuation appears reasonable on traditional metrics, the sustainability of earnings and path to margin recovery remain critical uncertainties that warrant a cautious investment stance."
Shareholding: Institutional Confidence Waning
The shareholding pattern reveals subtle but concerning shifts in institutional positioning. Promoter holding declined to 40.29% in September 2025 from 40.92% in June 2025, a 63 basis point sequential reduction. Bandhan Financial Holdings Limited, the primary promoter, holds 39.41% of the equity, with Bandhan Mutual Fund (trustee: Bandhan Mutual Fund Trustee Limited) holding an additional 0.88%.
| Category | Sep'24 | Dec'24 | Mar'25 | Jun'25 | Sep'25 | QoQ Change |
|---|---|---|---|---|---|---|
| Promoter | 39.98% | 39.98% | 39.98% | 40.92% | 40.29% | -0.63% |
| FII | 26.73% | 23.22% | 22.73% | 24.34% | 23.43% | -0.91% |
| Mutual Funds | 9.39% | 8.24% | 8.96% | 7.82% | 8.99% | +1.17% |
| Insurance | 6.71% | 7.00% | 6.51% | 7.51% | 7.60% | +0.09% |
| Other DII | 0.31% | 0.24% | 0.96% | 1.26% | 1.31% | +0.05% |
Foreign institutional investors (FIIs) reduced their stake by 91 basis points sequentially to 23.43% in September 2025, continuing a trend of declining foreign interest. FII holdings have fallen from a peak of 26.73% in September 2024, representing a cumulative 330 basis point reduction over four quarters. This exodus of foreign capital signals diminished confidence in the bank's near-term earnings trajectory.
Conversely, mutual fund holdings increased by 117 basis points to 8.99% in September 2025, suggesting domestic institutional investors are selectively accumulating shares at current valuations. Insurance company holdings also edged higher to 7.60%, indicating patient long-term capital remains interested in the franchise despite operational challenges.
Stock Performance: Persistent Underperformance Against Benchmarks
Bandhan Bank's stock performance has been deeply disappointing across all meaningful timeframes. Over the past year, the stock has declined 3.97% whilst the Sensex advanced 5.58%, resulting in a negative alpha of 9.55 percentage points. The underperformance becomes more pronounced over longer periods, with the stock down 20.57% over two years against a Sensex gain of 31.65%, and down 35.71% over three years against a Sensex advance of 40.77%.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -0.41% | -0.18% | -0.23% |
| 1 Month | 4.99% | 5.15% | -0.16% |
| 3 Months | 1.37% | 3.59% | -2.22% |
| 6 Months | 2.93% | 5.19% | -2.26% |
| YTD | 7.23% | 8.02% | -0.79% |
| 1 Year | -3.97% | 5.58% | -9.55% |
| 2 Years | -20.57% | 31.65% | -52.22% |
| 3 Years | -35.71% | 40.77% | -76.48% |
The stock's year-to-date performance of 7.23% marginally trails the Sensex advance of 8.02%, indicating some recent stabilisation, yet the longer-term underperformance remains a significant concern for shareholders. The bank has underperformed the private sector banking index by 15.32 percentage points over the past year, with the sector returning 11.35% against Bandhan's decline of 3.97%.
From a risk-adjusted perspective, the stock exhibits high volatility with a beta of 1.35, indicating it moves 35% more than the broader market. The volatility of 32.12% over the past year, compared to the Sensex's 12.49%, classifies Bandhan Bank as a "Medium Risk Low Return" investment, an unfavourable combination for risk-conscious investors.
Investment Thesis: Mixed Signals Across Parameters
Bandhan Bank's investment profile presents a complex picture with divergent signals across key assessment parameters. The bank's quality fundamentals remain rated as "Good," reflecting its established franchise, regulatory compliance, and reasonable capitalisation levels. However, the financial trend has turned decisively negative, with the September 2025 quarter marking a continuation of deteriorating operational metrics.
The technical picture offers a glimmer of hope, with the stock transitioning to "Mildly Bullish" territory on October 20, 2025, at ₹166.95. Weekly and monthly MACD indicators show mildly bullish signals, whilst on-balance volume (OBV) suggests accumulation by informed investors. However, the stock trades below key moving averages, indicating resistance levels that need to be convincingly breached for sustained upward momentum.
The capital adequacy ratio of 18.23% as of September 2025, with Tier 1 capital at 18.3% (June 2025 data), provides a robust buffer for absorbing potential credit losses. This compares favourably to regulatory minimum requirements and offers some comfort regarding the bank's ability to navigate the current asset quality cycle without capital raising pressures.
Key Strengths & Risk Factors
✓ KEY STRENGTHS
- Strong Capital Position: CAR of 18.23% provides ample buffer for growth and absorbing credit costs
- Established Franchise: Deep presence in underbanked markets with strong branch network
- Reasonable Valuation: P/E of 13.37x and P/BV of 1.13x offer value compared to premium peers
- Deposit Growth: Total deposits up 11.84% YoY to ₹1,51,212 crores demonstrates franchise strength
- Provision Coverage: PCR of 73.7% indicates adequate provisioning against NPAs
- Domestic Institutional Support: Mutual fund holdings increased 117 bps QoQ to 8.99%
- Dividend Consistency: Maintained ₹1.50 per share dividend despite earnings pressure
⚠ KEY CONCERNS
- Profit Collapse: Net profit down 88.07% YoY to ₹111.87 crores in Q2 FY26
- Rising NPAs: Gross NPA at 5.02%, highest in eight quarters, up from 3.84% in Mar'24
- Margin Compression: NII down 11.77% YoY; NIM declined to 6.4% from 7.6% year-ago
- CASA Deterioration: CASA ratio plunged to 27.1% from 37.1% in five quarters
- Weak ROE: ROE of 8.43% significantly below peer average and cost of capital
- FII Exodus: Foreign holdings down 330 bps over four quarters to 23.43%
- Persistent Underperformance: Stock down 35.71% over three years vs Sensex up 40.77%
Outlook: What to Watch
POSITIVE CATALYSTS
- Stabilisation of gross NPA ratio below 5% in coming quarters
- Recovery in CASA ratio towards 30%+ through branch expansion and digital initiatives
- Improvement in NIM to 7%+ through repricing of loan book
- Quarterly profit exceeding ₹400 crores sustainably
- ROE expansion towards 12% through operational leverage
RED FLAGS
- Further deterioration in gross NPA beyond 5.5%
- CASA ratio declining below 25%
- Quarterly profit falling below ₹100 crores
- Continued FII selling pressure
- NIM compression below 6%
The path forward for Bandhan Bank requires demonstrable improvement in asset quality metrics, stabilisation of net interest margins, and a credible strategy to rebuild the CASA franchise. Management's ability to navigate the current credit cycle whilst preserving capital adequacy and restoring investor confidence will determine whether the bank can reclaim its growth trajectory or faces an extended period of consolidation.
The Verdict: Hold with Cautious Outlook
Score: 51/100
For Fresh Investors: Not recommended for fresh purchases at current levels. Wait for clear evidence of asset quality stabilisation and margin recovery before initiating positions. The risk-reward profile remains unfavourable given persistent operational headwinds and negative earnings momentum.
For Existing Holders: Continue to hold with strict monitoring of quarterly results. Consider reducing exposure if gross NPAs breach 5.5% or quarterly profits fall below ₹100 crores. Set a stop-loss at ₹155 (10% below current levels) to limit downside risk.
Fair Value Estimate: ₹180-185 (5.6% to 8.5% upside from current levels), contingent upon stabilisation of asset quality and margin recovery in H2 FY26.
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
