Why Is Nomura Cautious on Bandhan Bank Despite Cheap Valuations?
About Bandhan Bank
Bandhan Bank has historically been viewed as a high-growth lender with deep roots in microfinance and strong penetration in underbanked regions. Over time, the bank has been attempting a strategic transition toward a more diversified, secured, and retail-oriented loan book. This transition, while directionally positive, has exposed the bank to a multi-year phase of balance-sheet clean-up, margin recalibration, and slower headline growth.
Nomura’s latest assessment reflects this delicate phase. While acknowledging valuation comfort and some operational stabilization, the brokerage remains unconvinced about the pace of recovery relative to peers. The note underscores that Bandhan Bank’s turnaround is progressing, but not yet fast or broad-based enough to warrant a more constructive stance in the near term.
Q3 FY26 Snapshot: Stability Without Acceleration
In Q3 FY26, Bandhan Bank delivered a mixed performance. Margins were broadly in line with expectations, helped by treasury and one-off income streams. However, the core operational recovery — especially on asset quality and growth mix — continued to lag the broader banking sector. Nomura characterizes the quarter as stable, but not sufficiently strong to alter the medium-term narrative.
A key offset during the quarter was income generated from the sale of a written-off pool, which helped neutralize the impact of the new labour code provisions. While this provided temporary relief to profitability, Nomura highlights that such offsets are non-recurring in nature and should not be extrapolated into future earnings assumptions.
Asset Quality: Recovery Lags Peers
The most prominent concern in Nomura’s note is that Bandhan Bank’s asset-quality recovery remains slower than peers. Although headline non-performing asset ratios have improved compared to earlier stress periods, the pace of normalization is still behind other mid-sized private banks that faced similar cycles.
This lag has two implications. First, it keeps credit costs elevated relative to the sector. Second, it limits management’s ability to aggressively pivot toward higher-yielding unsecured segments without risking renewed stress. As a result, the bank remains cautious in its loan book expansion, prioritizing stability over speed.
Growth Mix: Safety Over Yield
| Parameter | Nomura Observation |
|---|---|
| Loan Growth | Driven by lower-yielding secured assets |
| Deposit Growth | Muted relative to peers |
| Margin Profile | Stable but without upside triggers |
Nomura notes that recent loan growth has been skewed toward lower-yielding segments. While this improves balance-sheet resilience, it caps margin expansion. Deposit growth, meanwhile, has remained muted, reflecting both competitive pressures and the bank’s conservative stance on pricing liabilities in order to protect spreads.
In such environments, traders and investors often align sector positioning with broader index cues using tools like Nifty Tip and BankNifty Tip, especially when banking stocks oscillate between value appeal and earnings uncertainty.
Earnings Outlook: Estimates Cut
Reflecting the slower-than-expected recovery, Nomura has cut its FY27–FY28 earnings estimates by 9% to 12%. The downgrade factors in continued pressure on asset quality, modest growth in higher-yielding assets, and the absence of strong operating leverage over the next few quarters.
While the margin trajectory is stable, Nomura does not see a clear catalyst for meaningful margin expansion in the near term. Cost efficiencies and funding discipline are largely priced in, leaving earnings growth heavily dependent on credit normalization and loan-mix improvement.
|
Positives Highlighted by Nomura
Stable margins despite sector pressure Valuation comfort at sub-1x book Gradual balance-sheet clean-up |
Key Concerns
Asset-quality recovery lags peers Muted deposit traction Limited near-term catalysts |
Valuation: Cheap, But Not Compelling Yet
Bandhan Bank currently trades at approximately 0.8x FY27 estimated book value, which Nomura acknowledges as inexpensive. However, the brokerage emphasizes that cheap valuations alone are insufficient to drive re-rating without visible acceleration in asset quality improvement and growth in higher-return segments.
In other words, Bandhan Bank is priced for caution — and rightly so, in Nomura’s view. The valuation offers downside support, but upside remains capped until the bank demonstrates sustained peer-comparable performance across credit costs, growth, and profitability metrics.
Investor Takeaway
Derivative Pro & Nifty Expert Gulshan Khera, CFP®, believes that Bandhan Bank represents a classic value-versus-visibility trade-off. While valuations provide comfort and downside protection, investors must weigh this against slower operational recovery and limited near-term triggers. Patience, position sizing, and clarity on risk appetite are crucial when evaluating such turnaround stories. A disciplined framework that separates structural value from cyclical noise can help investors navigate this phase more effectively. Deeper banking-sector insights and structured analysis are available at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
Related Queries on Bandhan Bank Outlook
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SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
