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Bandhan Bank Ltd

| Q4 FY26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤5th May 26

Summary : Bandhan Bank reported strong Q4FY26 results with improved asset quality, robust deposit growth, and higher profitability, while focusing on strategic portfolio diversification.

Management Perspective positive : Management repeatedly expressed pleasure and confidence, using phrases like "pleased to welcome you," "important and challenging year for the bank," "improvement across many key parameters," "encouraging momentum," "confidence in the portfolio," "strong growth trajectory," and "robust capital position." They highlighted positive trends and strategic achievements.

Concall Report Analysis & Insights

Business Overview

  1. Q4FY26 showed improved fundamentals, strengthening core businesses and balance sheet quality.
  2. Advances grew 13% YoY to INR 1.54 lakh crores, with non-EEB segments expanding 25% YoY.
  3. Deposits scaled to INR 1.66 lakh crores, driven by strong retail and CASA growth (29.3% CASA ratio).
  4. Net Interest Margins (NIMs) improved to 6.2%, supported by reduced cost of funds.
  5. Net profit for Q4 was INR 534 crores, a 68% YoY increase, with robust capital adequacy at 18.0%.

Future Growth Prospects

  1. Targeting 1.6%-1.7% Return on Assets (ROA) by Q4FY27, with 10-20 basis points NIM improvement.
  2. Aiming for 14%-15% credit growth, focusing on better deposit growth rates.
  3. Expect 50% reduction in PSL costs in FY27, aiming for near-zero thereafter.
  4. Continued focus on granular deposit growth, digital journeys, and product enhancement.
  5. Evaluating government-backed guarantees for EEB portfolio to reduce provisions.

Management Insights

  1. "This quarter marked an improvement across many key parameters, reflecting strengthening fundamentals across our core businesses."
  2. "Advances continued to grow at a healthy pace. The EEB segment has not only stabilized but also delivered good sequential growth."
  3. "CASA growth was strong during the quarter, and retail deposit mobilization continued to grow at an elevated trajectory."
  4. "Asset quality trends during the quarter were constructive. We saw not only a decline in slippages but also meaningful improvement across SMA buckets."
  5. "Our capital position remains robust. The capital adequacy ratio improved and stood at 18.0% and Tier 1 capital at 17.3%."

Signs of Skepticism

  1. Analysts questioned the NII growth lagging advances despite margin expansion.
  2. Concerns raised about the sustainability of low slippage trends given external factors.
  3. Queries on the full impact and management's strategy for the new RBI ECL guidelines.
  4. Skepticism regarding the high LCR compared to peers despite similar retail deposit mix.
  5. Questions about the specific components driving the targeted ROA improvement.

Risk Factors

  1. Operating expenses were elevated due to non-recurring items like PSLC costs and IT expenditures.
  2. External environment concerns, such as the Middle East war, could impact the economy and fuel prices.
  3. New RBI ECL guidelines' full impact is still being computed, with an estimated INR 1,250 crores transition impact.
  4. Intense competition in the deposit market, with rising term deposit rates from competitors.
  5. Potential for slippages to inch up, though current trends are positive.

Good To Know

  1. Board of Directors recommended a dividend of INR 1.50 per share.
  2. Branch network expanded to 1,955 branches, with 4,400 EEB banking units.
  3. Upgraded most housing finance centers to full-fledged banking branches.
  4. Secured book grew 25% YoY, now forming 56% of the overall portfolio.
  5. Employee costs increased by INR 73 crores due to additional working days and normal salary expenses.

Key Drivers

  1. Asset quality and collection efficiency improved.
  2. Strong retail and CASA deposit growth.
  3. Secured loan book expansion ahead of target.
  4. Significant reduction in PSL costs expected.

Key Analyst Discussions

Competitive Environment

  1. Analysts asked about competition in the deposit market and potential for rising term deposit rates.

Market Trends & Consumer Behavior

  1. Questions on collection trends during election periods and potential impact of external events like the Middle East war.

Financial Highlights

  1. Analysts inquired about the drivers of strong current account (CA) growth.
  2. Questions were raised on the trajectory of Net Interest Margins (NIMs) and cost of funds.
  3. Analysts sought clarity on the outlook for credit costs and slippage trends for FY27.
  4. Questions regarding the bank's average LCR and its comparison to previous quarters.
  5. Inquiries about the impact of the new Labor Code on employee costs.

Product Composition

  1. Analysts asked for details on the vehicle finance business mix (CV, PV, 2-wheelers).
  2. Questions about the proportion of EEB loans qualifying for PSL and future targets.
  3. Inquiries about the target percentage for secured books in the total portfolio by FY27.

Strategic Considerations

  1. Questions on the bank's strategy for neutralizing PSL shortfall and earning from this portfolio.
  2. Analysts asked about the bank's approach to NPA management and potential ARC sales.
  3. Inquiries about the factors contributing to the targeted ROA improvement.
  4. Questions on the rationale behind the shift towards secular growth and portfolio diversification.