Why Is Macquarie Cautious on Bandhan Bank Right Now?
About Bandhan Bank and Its Operating Landscape
Bandhan Bank occupies a unique position within India’s banking ecosystem. Originating as a microfinance-focused institution, it has steadily evolved into a diversified universal bank with exposure across microfinance, retail lending, housing finance, and small business loans. This transition has broadened its addressable market but has also introduced new complexities around asset quality, funding mix, and risk management.
Over the last few years, Bandhan Bank’s performance has been closely tracked by investors due to periodic stress in parts of its loan book, especially in the microfinance and unsecured segments. While the bank has taken multiple steps to clean up its balance sheet, the market remains sensitive to any signs of renewed slippages or elevated credit costs.
Macquarie’s Underperform View Explained
Macquarie has reiterated an Underperform rating on Bandhan Bank with a target price of ₹130, citing concerns around the sustainability of recent earnings improvement. According to the brokerage, the headline profit beat in Q3 was largely driven by higher other income rather than a fundamental improvement in core operating metrics.
The brokerage believes that while the reported numbers may appear encouraging on the surface, underlying asset quality pressures continue to pose challenges. Elevated slippages and higher credit costs, in Macquarie’s view, constrain the bank’s ability to deliver consistent, high-quality earnings over the near term.
Asset Quality: The Key Monitorable
Asset quality remains the central concern in Macquarie’s analysis. Despite balance-sheet clean-up measures undertaken in recent quarters, slippages have stayed elevated, particularly in legacy portfolios. This has translated into higher credit costs, which continue to weigh on profitability.
Macquarie notes that while one-off clean-up actions can improve reported ratios temporarily, sustained improvement requires a longer track record of stable collections and lower incremental stress. Until such consistency is visible, the brokerage remains cautious about assigning a more constructive valuation to the stock.
In banking, asset quality cycles tend to play out over extended periods. Even small pockets of stress, if not addressed early, can compound through higher provisions and management distraction. This is a key reason why Macquarie prefers to wait for clearer evidence of normalization before turning positive.
Margins and the Path to Recovery
On a more constructive note, Macquarie acknowledges that Bandhan Bank’s net interest margin is expected to improve gradually over the coming quarters. Lower cost of funds and repricing of deposits could provide some relief to margins, offering partial support to earnings.
However, the brokerage cautions that margin improvement alone may not be sufficient to drive a meaningful re-rating. In the absence of sustained asset quality improvement, higher margins could simply be offset by elevated credit costs, limiting the net benefit to shareholders.
This nuanced view highlights a broader market principle: banking stocks tend to reward investors not just for growth or margin expansion, but for the quality and durability of those earnings. Macquarie’s underperform stance reflects this emphasis on earnings quality over short-term recovery signals.
Valuation Versus Visibility
While Bandhan Bank’s valuation may appear optically reasonable compared to historical averages, Macquarie argues that valuation alone is not a sufficient catalyst. Without clearer visibility on credit cost normalization, the risk–reward remains skewed to the downside in the near term.
In volatile market phases, investors often gravitate toward banks with cleaner balance sheets and predictable earnings trajectories. As a result, stocks perceived to carry higher uncertainty can remain range-bound despite appearing inexpensive on traditional metrics.
Active market participants often align such stock-specific views with broader index trends to manage exposure more efficiently. Many traders track index behavior to time entry and exit decisions during uncertain phases. 👉 Nifty Tip | BankNifty Tip
What Could Change the Narrative?
Macquarie indicates that a sustained reduction in slippages, stable collection efficiency across segments, and a visible decline in credit costs could prompt a reassessment of its cautious stance. Additionally, successful diversification away from higher-risk segments would improve earnings stability.
Until these factors are firmly in place, the brokerage prefers to remain on the sidelines. This approach reflects a broader institutional preference for clarity and consistency over early-stage turnarounds that may still face execution risk.
Investor Takeaway
Derivative Pro and Nifty Expert Gulshan Khera, CFP®, believes that banking stocks demand patience and a sharp focus on balance-sheet quality rather than headline profitability alone. In cases like Bandhan Bank, investors must weigh valuation comfort against asset quality visibility and execution consistency. Disciplined capital allocation and respect for risk remain essential. For deeper market insights and structured perspectives, visit Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
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.
