Whalesbook
Margin Expansion Boosts Profit
The bank's net interest margin (NIM) expanded by 30 basis points sequentially to 6.2%. This improvement stemmed from a 20 basis point reduction in funding costs alongside a 10 basis point rise in loan yields. This strategic management of costs and pricing reflects a positive shift in profitability. Analysts have responded with upward revisions to earnings forecasts and strengthened buy recommendations, anticipating better return on assets (RoA).
Profit Rebound and Market Reaction
Bandhan Bank reported a substantial 68% year-over-year increase in profit for the fourth quarter of fiscal year 2026, reaching INR 5.3 billion and significantly beating analyst expectations by 32%. Net interest income rose 4% sequentially to INR 27.9 billion. The bank's net interest margin (NIM) widened to 6.2%, a 30 basis point gain attributed to lower funding costs and higher asset yields. Following the earnings release on April 29, 2026, the bank's stock price jumped approximately 10.5% to INR 197.52, hitting a 52-week high. This surge was accompanied by unusually high trading volume, with 90.70 million shares changing hands, indicating strong investor interest.
Peer Comparison: Financial Health and Sector Trends
Compared to other small finance banks, Bandhan Bank's valuation metrics present a mixed view. Its trailing twelve-month P/E ratio of around 28.5x is higher than Ujjivan Small Finance Bank's (approx. 22.65x) but lower than AU Small Finance Bank's (approx. 33.76x). Equitas Small Finance Bank currently has a negative P/E ratio due to earnings volatility. Bandhan Bank projects its return on assets (RoA) to rise to 1.3%-1.5% by FY27-28 from 0.6% in FY26, while AU Small Finance Bank consistently achieves RoA exceeding 2%. The broader Indian banking sector is seeing better asset quality and steady credit growth, but deposit rates are rising, creating margin pressure. Analyst sentiment remains largely positive, with Motilal Oswal maintaining a 'Buy' rating and a revised target of INR 210. Other firms like Emkay and JM Financial also hold positive views, with target prices of INR 220 and INR 200, respectively.
Concerns: Asset Quality and Valuation
Despite the profit surge, persistent worries about asset quality and valuation remain. Bandhan Bank's gross non-performing assets (GNPA) improved to 3.27% from 4.71% a year ago. However, this figure remains higher than many peers and the bank's own five-year average of 6.60%. The bank plans to sell approximately INR 6,931 crore in stressed assets, mainly from its Emerging Entrepreneurs Business (EEB) and Aspiring Business Group (ABG) segments, indicating ongoing efforts to address legacy issues. While NIM improved sequentially to 6.2%, it is still below the 6.7% recorded last year. The Current Account Savings Account (CASA) ratio has dropped to 29%, which could increase future funding costs if not managed carefully. The bank's P/E ratio of about 28.5x is considered expensive by some when compared to more cautiously valued competitors.
Analyst Views and Future Outlook
Motilal Oswal has raised its earnings estimates for Bandhan Bank by 4-5% for FY27 and FY28, coupled with a target price of INR 210. This reflects confidence in the bank's recovery, with projections for RoA to reach 1.3%-1.5% during those years. This outlook aligns with overall analyst sentiment, which largely favors a buy-side recommendation and expects growth. Investors will be watching closely to see if the bank can maintain margin expansion, effectively manage asset quality, and navigate its competitive funding environment.