Bandhan Bank shares dropped nearly 17% after the lender cut its return on assets (RoA) guidance for FY27. Despite a 35% rise in quarterly net profit, investors reacted to concerns over sluggish loan growth and rising operating costs.
Detailed Coverage
Bandhan Bank shares faced a sharp correction, closing at Rs 173.40 on the BSE following the release of its June-quarter (Q1 FY27) financial results. While the bank reported a 35% year-on-year increase in net profit to Rs 502 crore, investor focus shifted to the management's decision to cut its return on assets (RoA) guidance by 40 basis points. The new guidance for FY27 now stands in the range of 1.2% to 1.4%, signaling a cautious outlook on the bank's future profitability.
Impact of Operational Costs and Loan Growth
The reduction in RoA guidance is primarily driven by two factors: a 30 basis point pressure from tighter interest margins and a 10 basis point drag from higher operating expenses. The bank reported a cost-to-income ratio of 61.5%, which is a sequential increase of 188 basis points. This rising operational cost base is putting pressure on pre-provision operating profit, which saw a 6% decline compared to the previous quarter. Adding to the investor concern is the performance of the loan book. Total loan growth contracted by 1% sequentially, with the crucial microfinance portfolio also showing a decline. This slowdown in lending activity contrasts with the management’s stated target of achieving 14% year-on-year credit growth for the full fiscal year.
Market Outlook and Operational Challenges
Financial analysts have pointed toward the bank's struggle to achieve meaningful operating leverage, which is the ability to grow revenue faster than expenses. Macquarie Capital's financial services research team highlighted that the path toward improved RoA is currently clouded by margin constraints and high operational spending. Although net interest margins held steady at 6.2%, the inability to expand the loan book and manage rising costs has made the near-term earnings outlook appear difficult to many market participants.
For investors, the primary monitorables going forward will be the bank's ability to revive loan growth and stabilize its cost-to-income ratio. The market will specifically track whether the lender can meet its 14% credit growth target in the coming quarters, as any further disappointment in loan disbursement or a sustained rise in operating costs could continue to influence sentiment regarding the bank's profitability trajectory.