- You may have missed the recent price jump—now’s the moment to reassess.
- Sequential net profit surged 84% while asset quality showed measurable improvement.
- Two leading brokerages upgraded the stock, implying 15‑22% upside.
- Risks remain: election‑driven policy uncertainty and lingering credit cost pressure.
- Understanding the broader banking landscape is essential before positioning.
Most investors ignored the fine print in Bandhan Bank’s Q3 report, and that was a mistake.
Bandhan Bank Q3 Results: What the Numbers Reveal
For the December quarter, Bandhan posted a standalone net profit of ₹205.99 crore, an 83.9% jump from the prior quarter. Total income rose 7.8% QoQ to ₹6,122.24 crore, driven primarily by higher interest earnings and a modest uplift in fee‑based income. Net interest income (NII) improved 3.8% QoQ to ₹2,688 crore, nudging the Net Interest Margin (NIM) to 5.9% from 5.8%.
On the asset‑quality front, gross NPA fell 169 basis points to 3.3%, while net NPA slid to 1.0%—the lowest level since the bank’s inception. Deposits expanded 11% YoY to ₹1.57 lakh crore, underscoring a robust funding base that can sustain loan growth.
Why the Margin Expansion Matters for the Banking Sector
Margin compression has been a persistent theme across Indian banks, especially after the RBI’s policy rate hikes in 2022‑23. Bandhan’s ability to lift NIM, even marginally, signals that its asset‑liability management is beginning to bear fruit. A higher NIM translates directly into better profitability, assuming credit costs stay in check. For peers such as HDFC Bank and Kotak Mahindra, which posted NIMs of 4.6%‑4.8% in the same period, Bandhan’s 5.9% places it ahead of the pack in this metric, albeit on a smaller balance sheet.
Competitor Landscape: How Peers Are Reacting
While Bandhan’s shares rallied, HDFC Securities kept a ‘Reduce’ stance, citing elevated credit costs and slower deposit growth. In contrast, JM Financial’s ‘ADD’ upgrade reflects optimism about loan‑growth CAGR of 15‑17% over the next two to three years. Larger banks are accelerating digital onboarding and cross‑selling to offset higher funding costs, a strategy Bandhan echoed in its CEO’s remarks about digital initiatives.
Adani’s recent foray into retail lending has heightened competition in the micro‑finance niche, where Bandhan historically excelled. However, Bandhan’s superior asset‑quality trajectory—net NPA dropping from 1.4% to 1.0%—offers a competitive moat that could protect margins as the market tightens.
Historical Context: Is This a Turning Point?
Bandhan’s share price has been flat for the past year, with a 52‑week low of ₹128.15 in February 2025. The stock fell 17% over the last six months, reflecting investor anxiety over a prolonged NPA cycle that dragged its Return on Equity (RoE) to an average of 8% over five years. The current rally is the first 5%‑plus intraday move in nine months, indicating a potential inflection point.
When the bank posted a similar NPA improvement in Q2 FY26, the market reaction was muted, but the subsequent quarter’s profit acceleration has now triggered analyst upgrades. History suggests that a sustained improvement in GNPA and net profit can translate into a valuation reset, provided the bank maintains loan growth and controls credit costs.
Technical and Fundamental Glossary (Quick Reference)
- Net Interest Margin (NIM): Ratio of net interest income to average earning assets; a key profitability indicator for banks.
- Gross NPA (GNPA): Total non‑performing assets before provisions; higher GNPA signals credit stress.
- Net NPA: GNPA minus provisions; reflects the actual burden of bad loans.
- Return on Assets (RoA): Net profit divided by total assets; gauges how efficiently a bank uses its asset base.
- Return on Equity (RoE): Net profit divided by shareholder equity; measures shareholder return.
Investor Playbook: Bull vs. Bear Cases
Bull Case: The sequential profit surge, improving NIM, and sharp NPA reduction suggest the turnaround narrative is gaining traction. Motilal Oswal’s new target of ₹175 implies a 22% upside, while JM Financial’s ₹160 target adds a 15% upside. If loan growth maintains a 15%‑17% CAGR and credit cost guidance of 1.6%‑1.7% holds, RoA could rise to 1.3%‑1.5% by FY28, supporting a multiple expansion.
Bear Case: The bank still faces YoY profit pressure—net profit is down 51.6% from the prior year—and credit cost volatility could erode margins. HDFC Securities warns of higher-than‑expected credit costs and a muted deposit pipeline, especially if the West Bengal elections introduce policy uncertainty. A 30% miss on loan growth or a spike in GNPA above 4% could push the stock back toward its 52‑week low.
Investors should weigh these scenarios against their risk tolerance. A position of 5‑10% of a diversified equity portfolio could capture upside while limiting exposure to downside risk.
Actionable Takeaways for Your Portfolio
- Monitor upcoming West Bengal election outcomes for potential policy shifts affecting micro‑finance exposure. \n
- Track credit cost trends; a sustained rise above 3.5% could invalidate the bullish earnings forecasts.
- Consider adding Bandhan at current levels if you believe the turnaround is real and can outpace peers.
- Set stop‑losses around ₹135 to protect against a sudden reversal.