Motilal Oswal has downgraded Bandhan Bank to Neutral with a target price of ₹225. While Q1 FY27 profit grew 35% year-on-year, the revision reflects concerns over slower deposit growth and trimmed earnings estimates for the coming years. Investors are monitoring the bank's strategy to balance funding costs against credit expansion.
Detailed Coverage
Bandhan Bank faces a cautious outlook from brokerage firm Motilal Oswal, which has downgraded the stock to Neutral. The adjustment follows the release of the bank’s first-quarter financial results for fiscal year 2027, where profit after tax reached ₹500 crore. This marks a 35% increase compared to the same period last year, though the bottom line still recorded a 6% decline on a quarter-on-quarter basis.
Earnings and Margin Performance
The reported profit exceeded brokerage expectations by approximately 9%, a result primarily aided by lower provisions—money set aside by banks to cover potential losses from bad loans. Net interest income, which is the difference between interest earned on loans and interest paid on deposits, grew by 6% year-on-year. The bank managed to keep its net interest margin, a key measure of profitability, stable at 6.2% for the quarter. This stability was achieved as the bank balanced the cost of funds with the yields generated from its loan book.
Lending Growth and Deposit Strategy
Bandhan Bank saw a notable 18% year-on-year growth in net advances. A significant portion of this growth came from the emerging entrepreneur business (EEB) segment, which expanded by 27% compared to last year. However, the bank is facing a hurdle in deposit mobilization. Deposit growth slowed to 6.6% year-on-year, reflecting a sequential decline of 0.9%. Management has indicated this is a deliberate, strategic choice to reduce reliance on higher-cost bulk deposits. As a result of this strategy, the credit-to-deposit ratio has climbed to 92%, indicating that the bank is lending out a larger portion of the deposits it holds.
Earnings Outlook and Valuation Context
Reflecting the ongoing challenges in deposit growth and overall operating environment, Motilal Oswal has lowered its earnings forecasts for the bank by roughly 14% for FY27 and 6% for FY28. The brokerage estimates a return on assets of 1.0% for the current fiscal year, potentially improving to 1.4% by FY28. The assigned target price of ₹225 is pegged to a valuation of 1.3 times the projected book value per share as of March 2028.
Investors will likely track the bank’s ability to accelerate deposit collection in the coming quarters to support its lending growth without facing increased pressure on funding costs. Monitoring the movement of the credit-to-deposit ratio will also be essential to gauge how the bank manages its liquidity and balance sheet strength amid evolving sector conditions.