Bandhan Bank Q2 growth overshadowed by asset quality, management issues

Ratan Kumar Kesh, the interim CEO who took charge from Chandra Shekhar Ghosh in July, has got merely a month’s extension. Thus, any future announcement regarding a longer term for Kesh would be keenly watched as he has been with the bank for almost two years.

The bank’s advances, including off-book pass-through certificates, grew 21% year-on-year to ₹1.3 trillion in Q2. Bandhan has rarely faltered in lending growth even though asset quality challenges remain. Deposit growth was 27% year-on-year to ₹1.4 trillion. With loan deposit ratio (LDR) at 92%, there is no pressure on the bank to shore up deposits or reduce assets.

Also Read: Deposits outpace loans in relief for private banks

The banking sector is grappling with issues of liquidity coverage ratio (LCR), which is mandated at 100%. This means that banks must have enough high-quality liquid assets (HQLA) to cover their expected net cash outflows over a 30-day period of financial stress. After adjusting for the revised parameters and simulating multiple scenarios, CareEdge Ratings expects the median LCR of banks to drop and stay in the range of 117-122%. In this context, Bandhan’s LCR at 162% is comfortably higher than most other banks.

Though the deposit growth appears healthy, bulk deposits were up 58% year-on-year, whereas the relatively more stable retail deposits rose by 16%. According to the revised definition by RBI circular issued in June, bulk deposit is defined as a single deposit of more than ₹3 crore (earlier threshold was ₹2 crore). Bulk deposits are costlier as they earn higher interest rates and they are also more vulnerable to quick outflows. Notably, the bank’s retail deposits as a percentage of total deposits have now fallen from the peak of 78% in Q1FY23 to 68% as of Q2FY25.

The bank’s overall collection efficiency, excluding NPA, has dropped marginally to 98.2% in Q2FY25 from 98.7% in the previous quarter. The dip in the ratio is owing to the lower collection efficiency in the emerging enterprise business at 98.1% versus 98.8% QoQ. The segment is a worry for the bank as it accounted for 67% of the bank’s total GNPA at June-end.

Bandhan’s valuation continues to be undemanding at just about 1x of FY26 book value, based on Bloomberg consensus estimate. However, the key catalysts for the stock would be a sustained improvement in asset quality along with clarity about longer tenure for the CEO.

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