Of the Rs 1,553 crore in gross slippages reported in Q1 FY26, Rs 1,089 crore (accounting for about 70 percent of the gross slippages) came from the bank’s Emerging Entrepreneurs Business (EEB), its core microfinance portfolio.
The data was disclosed by Managing Director and CEO Partha Pratim Sengupta during the bank’s post-results analyst call on July 18.
The bank’s microfinance portfolio comprises primarily of small-ticket, unsecured loans to low-income women borrowers.
“Our guidance remains the same,” Sengupta said. “We said that credit cost will be remaining almost at the same thing in Q1, but thankfully we have a little bit lower credit cost compared to March quarter. So, that is a good indication.”
To buffer against further stress, the bank made provisions of Rs 1,147 crore in the quarter, including technical write-offs worth Rs 1,055 crore.
Of this, nearly Rs 950 crore was attributed to aged microfinance accounts. These were not new delinquencies, but older NPAs, clarified Chief Risk Officer Kumar Ashish during the analyst call. “It is for a significant level of vintage, it’s not something which is fresh,” he said.
However, despite the large slippages, the bank’s leadership suggested that conditions may be turning around in key markets.
“Three-fourths of our banking outlets which are distributing this EEB loan, we largely see they are out of the problem in the larger sense,” said Sengupta. “Which means they will be going forward with business as usual.”
The EEB book, once the bank’s growth engine, has also been a source of concentration risk.
In response, Bandhan has accelerated a shift away from unsecured lending and toward secured, retail and SME-focused credit. The share of secured loans in the overall loan book IN Q1 FY26 has risen to 52 percent, up from 43 percent a year ago.
“Overall, non-EEB is growing at a much faster pace of almost 20 percent to 27 percent as we see,” said Chief Financial Officer Sunil Samdani, adding that the bank now expects credit growth for FY26 to be in the range of 5 to 8 percent, slower than in past years, but more calibrated.
However, the bank’s Net Interest Margin (NIM), a measure of lending profitability, dropped to 6.4 percent in the June quarter.
“Over the medium term, NIMs may settle around 6 percent,” said Samdani, attributing the decline to the bank’s ongoing move toward lower-yield, secured credit.
Funding pressures were also visible.
The Current Account Savings Account (CASA) ratio, a key indicator of low-cost funding, fell to 27.1 percent, as the bank relied more heavily on term deposits and wholesale funding. But Samdani noted that deposit repricing was already yielding results. “We saw the impact immediately in the first quarter itself, 19 basis points reduction overall on the cost of deposit,” he said.
On the lending side, the bank remains cautious about borrower acquisition in the EEB segment. “86 percent, 87 percent is existing borrowers and 13 percent, 14 percent is coming from the new borrowers,” said Ashish.
The management also acknowledged a broader industry move toward tighter controls in unsecured lending. “Given that the last cycle of overheating really impacted the entire industry in a big way, our belief is that people will follow the discipline,” said Ashish. “Guardrails may be coming into play,” he added, particularly for individual loan products.
In terms of geographic diversification, Bandhan Bank still derives a disproportionate share of its business from eastern India. “Our strongholds remain East and West Bengal, Bihar, Assam, UP,” Sengupta said. “Where we are not really able to grow is southern parts of India, specifically Tamil Nadu, Karnataka.” Expanding in new geographies remains a priority under the bank’s broader de-risking strategy.
Looking ahead, the bank expects a gradual improvement in asset quality in Q2, and reiterated its full-year credit cost guidance of 2.5 percent. “That 2.5 percent, till now that is our aim,” said Sengupta.
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