Bandhan Bank shares slump 15% after lender lowers FY27 guidance

Bandhan Bank shares fell nearly 15% on Wednesday. The lender cut its FY27 profitability guidance, lowering its return on assets (RoA) target to 1.2-1.4% due to expected pressure on net interest margins and higher operating expenses.

Shares of Bandhan Bank slumped nearly 15 per cent on Wednesday after the private sector lender reported its June quarter earnings and warned that net interest margins (NIMs) are likely to remain under pressure over the next two quarters, prompting it to lower its profitability guidance for FY27.

Profitability Guidance Slashed

During its post-results conference call, the bank revised its exit return on assets (RoA) guidance for the fourth quarter of FY27 to 1.2-1.4 per cent from the earlier 1.6-1.8 per cent, citing persistent pressure on margins and elevated operating expenses.

Management attributed the downward revision to a challenging external environment marked by elevated funding costs, geopolitical tensions in West Asia, energy price volatility, unpredictable monsoons and higher technology investments.

The bank said around 40 basis points of the reduction in the guided RoA would stem from margin pressures, while another 10 basis points would be due to higher operating expenses on technology initiatives such as loan origination systems (LOS) and digital infrastructure.

Margin Pressure and Brokerage View

The lender said its NIM remained stable sequentially at 6.2 per cent in the June quarter but cautioned that elevated funding costs would weigh on margins going forward.

Equirus Securities, in its post-results report, noted that "NIM remained stable qoq at 6.2%, but elevated CoF and deposit competition are expected to pressure margins," while adding that management expects higher cost of funds to keep margins under strain.

The brokerage also highlighted the impact of the revised profitability outlook, saying, "Management maintained opex-to-assets guidance at 4.2% but lowered its RoA target to 1.2-1.4% (from 1.6-1.8%), reflecting a 30bps hit from margin pressure and 10bps from higher opex."

Operating Expenses and Tech Investment

According to the bank, higher operating expenditure is being driven by continued investments in technology, including cloud infrastructure, hardware, software and loan origination platforms, even as these investments are expected to improve operating efficiency over the medium term.

Future Credit Growth Outlook

Despite the near-term profitability pressure, the bank maintained its guidance for around 14 per cent credit growth in FY27, with non-emerging entrepreneurs business (non-EEB) expected to drive growth while the EEB portfolio remains under a cautious approach amid macroeconomic uncertainties. The bank also continues to target a higher share of secured loans in its portfolio. (ANI)

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