Bandhan Bank Share Crashed Despite 35% Profit Growth: Here’s Why?

Bandhan Bank shares fell around 16% after the private lender announced its Q1 FY27 results. The fall may appear surprising because the bank’s profit increased nearly 35% year-on-year.

However, investors were not reacting mainly to the reported profit. The bigger concern came from Bandhan Bank’s earnings call, where management lowered its profitability expectations for FY27.

This reset changed the market’s expectations about how quickly Bandhan Bank’s earnings can recover.

Why Did Bandhan Bank Shares Crash 16%?

The main trigger was the reduction in the bank’s expected RoA. Bandhan Bank previously aimed to achieve an exit RoA of 1.6% to 1.8% by Q4 FY27. 

During the Q1 earnings call, the CEO said achieving this range within the original timeline had become more challenging.

Management now sees an exit RoA of around 1.2% to 1.4% as the more probable outcome.

This represents an approximately 40-basis-point reduction in profitability expectations. For a bank, this is a meaningful change because even a small decline in RoA can have a large impact when applied across the entire balance sheet.

What Is RoA and Why Does It Matter?

Return on assets, or RoA, measures how much profit a bank earns from the assets it owns.

A bank’s assets mainly include loans given to customers, investments and balances maintained with other banks.

The formula is:

RoA = Annual profit divided by average total assets

An RoA of 1.4% means the bank generates ₹1.40 of annual profit for every ₹100 of assets. An RoA of 1.8% means it earns ₹1.80 for every ₹100 of assets.

The difference may appear small, but Bandhan Bank had total assets of approximately ₹2.09 lakh crore as of June 2026. Illustratively, a 0.40 percentage point difference on this asset base would equal around ₹838 crore of annualised profit.

This is only an illustration because the guidance applies to the exit quarter and the bank’s asset base will continue to change. However, it shows why investors reacted strongly to the guidance cut.

Why Did Bandhan Bank Lower Its RoA Expectation?

Management attributed around 30 basis points of the 40-basis-point reset to pressure on net interest margin. The remaining 10 basis points came from higher operating expenses.

1.  NIM Pressure Accounts for Around 30 Basis Points

Net interest margin, or NIM, measures the interest a bank earns after paying interest to depositors and lenders, relative to its interest-earning assets.

Bandhan Bank had earlier expected its NIM to move towards approximately 6.5% by the exit of Q4 FY27. That expectation has now become difficult to achieve.

Management’s immediate aim is to protect the current NIM of around 6.2%, rather than assume a significant improvement.

The bank is facing competition for deposits, which can force it to offer higher interest rates to attract funds. At the same time, competition in lending may make it difficult to fully pass these higher costs to borrowers.

Bandhan Bank’s Q1 FY27 NIM stood at 6.2%, down 16 basis points year-on-year.

Funding growth also needs attention. Gross advances increased 16.4% year-on-year, while total deposits grew 6.6%. Deposits also declined 0.9% sequentially.

When loans grow much faster than deposits, a bank may need to pay more to attract funding. This can put further pressure on NIM.

2. Higher Expenses Account for the Remaining 10 Basis Points

Bandhan Bank had guided for operating expenses to remain around 4.2% of assets. However, this ratio was already at 4.3% in Q1 FY27.

The bank’s cost-to-income ratio also increased from 52.1% in Q1 FY26 to 61.5% in Q1 FY27. This means the bank spent more than ₹61 to generate every ₹100 of income, compared with around ₹52 a year earlier.

Higher expenses reduce the amount of operating income that eventually becomes profit, making it harder for the bank to achieve its earlier RoA target.

Why Did Profit Rise Despite the Weak Outlook?

Bandhan Bank’s profit increased 34.9% year-on-year to approximately ₹500 crore. However, this increase was mainly supported by lower provisions rather than stronger operating performance.

Net interest income increased only 5.9%, while non-interest income declined 16.8%. At the same time, operating expenses increased 19.4%.

As a result, operating profit declined 18.6%. Profit still increased because provisions fell 40.5%.

Lower provisions are positive, but investors generally prefer profit growth supported by stronger income and better operating efficiency. Provision-led profit growth may not continue once credit costs stabilise.

Was Asset Quality the Problem?

Asset quality was not the main reason for the fall.

Bandhan Bank’s gross NPA ratio improved from 5% in Q1 FY26 to 3.1% in Q1 FY27. Its net NPA ratio declined from 1.4% to 0.9%, while credit cost fell from 3.5% to 1.8%.

The bank’s EEB stress pool also declined 31% year-on-year to ₹3,980 crore.

These numbers show that stress in the microfinance portfolio has reduced. The market was instead concerned that margin pressure and high expenses could prevent these asset-quality improvements from translating into stronger profitability.

What Could Support RoA Going Forward?

Management expects other income to potentially add around 10 to 20 basis points to RoA. A further marginal decline in credit costs could also support profitability.

The bank’s rising secured-loan mix is another positive. Secured loans accounted for 56.8% of gross advances in Q1 FY27, up from 52.1% a year earlier.

A higher secured mix can make the loan portfolio more stable and reduce future credit risk.

However, management is not assuming any major NIM improvement. This means higher other income, lower credit costs and a better loan mix will have to offset continued pressure from funding costs and operating expenses.

Author’s Take

Bandhan Bank’s Q1 FY27 results were not weak from an asset-quality perspective. NPAs declined, credit costs improved and the bank continued to increase the secured share of its loan portfolio.

The main concern was the slower-than-expected earnings recovery.

The reduction in exit RoA expectations from 1.6% to 1.8% earlier to a more probable 1.2% to 1.4% materially changes the bank’s near-term profitability outlook.

The key question is no longer only whether Bandhan Bank can reduce stress in its microfinance portfolio. Investors now need to see whether lower credit costs, higher other income and a better loan mix can compensate for pressure on NIM and operating expenses.