About Bandhan Bank

Bandhan Bank is a leading private sector bank in India, best known for its strong presence in microfinance and retail lending. Over the years it has expanded into small and medium-enterprise (SME) credit, savings and deposit mobilisation, and other banking services. Its microfinance arm has been one of its defining businesses, yet rising competition, regulatory norms, and asset quality pressures have tested its pace of growth. The bank has also been focusing on strengthening its liability franchise, shifting toward secured lending and improving operational efficiencies to ensure better risk management and sustainable profitability.

CLSA’s View: Outperform Maintained with Target Price ₹220

Brokerage firm CLSA has reiterated its Outperform rating on Bandhan Bank, assigning a target price of ₹220 per share. This reflects expectations of significant medium-term upside despite short-term challenges. The firm believes the bank is shifting strongly toward a more secured loan mix, and that the worst of asset quality pressure is likely to ease by the second quarter of FY26. CLSA sees Bandhan as well-positioned among its peer set in the microfinance cycle recoveries.

Q2FY26 Headwinds: What To Watch

While the outlook is positive over 2–3 quarters, CLSA warns that Q2FY26 is likely to be the most challenging period. Some of the key headwinds include:

• NIM Compression: Net interest margins are expected to moderate further. Rising funding costs and lag in deposit repricing could squeeze margins in the near term.
• Slower Recovery: Though recovery in microfinance collections has been observed, overdue levels remain elevated. Normalization of collection efficiencies may take time.
• Asset Quality Stress: Slippages—particularly in unsecured lending—are still a concern. CLSA anticipates that gross non-performing assets (GNPA) may remain elevated before improving meaningfully by Q2 FY26.

Strengths & Medium-Term Positives

Despite near-term challenges, CLSA sees several reasons to be bullish on Bandhan Bank for the medium term:

• Shift Toward Secured Lending: The bank is increasing its share of secured assets, which tend to have lower risk, better recoverability, and more stable collateral backing. This move could reduce future slippages.
• Microfinance Recovery Cycle: Bandhan is among microfinance lenders that have fared relatively better. Collection efficiencies are improving, and overdue formation is easing, compared to several peers.
• Valuation Appeal: With earnings season showing some pressure but expectations already priced in, CLSA views the stock as offering attractive risk-reward at current levels, especially if asset quality continues to improve.
• Management Stability & Focus: There is renewed emphasis on audit, technology, and process discipline. These can help limit surprises in credit losses or provisioning.

Risk Factors & What Could Go Wrong

Investors should be mindful of several risks that could derail the positive case:

• Prolonged NIM Pressure: If deposit costs do not decline in line with expectations, or if lending rate repricings lag, margins could compress more than projected.
• Unsecured Lending Exposure: Any resurgence of defaults in unsecured or small ticket loans could pose renewed asset quality stress.
• Regulatory or Macro Shocks: Changes in RBI norms, higher inflation, or a sharp rise in interest rates could tighten capital, raise costs, or slow demand.
• Delayed Collection Recovery: Even though collection efficiencies are improving, full normalization especially in microfinance segments might take longer than anticipated. Any delays hurt earnings and provisioning.

Investor Takeaway

If you are a medium- to long-term investor, Bandhan Bank looks positioned to deliver meaningful upside from current levels, especially as asset quality stabilises and secured lending grows. The target price of ₹220 reflects that upside. However, the next couple of quarters—especially Q2 FY26—may test patience due to margin compression and elevated non-performing assets. Prudent investors may consider a phased entry or accumulate on dips, rather than committing fully at the current price. Monitoring metrics such as collection efficiency in microfinance, GNPA trends, deposit cost curve, and secured vs unsecured mix will be key indicators to watch.

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