Detailed Rationale0

Crisil Ratings has reaffirmed its ratings on the debt instruments of Bandhan Bank Ltd (Bandhan) at ‘Crisil AA-/Stable/Crisil A1+’.

 

The rating remains driven by Bandhan's established market position in the micro loan segment with growing presence in secured asset classes, robust capitalisation and stable resource profile. These strengths, however, are partially offset by moderate asset quality, which remains susceptible to inherent risks of the microfinance sector and geographical concentration in operations.

 

Gross advances were Rs 1,33,620 crore as on June 30, 2025, which marks a quarterly decline of 2.5% (as compared to a 0.7% growth in corresponding period of previous fiscal). For full fiscals 2025 and 2024, overall advances grew by 9.8% and 14.3%, respectively. Corresponding to this growth, the asset mix continues to diversify with a reduction in share of microfinance portfolio to 40% as of June 30, 2025, from 50% on March 31, 2024 and 63% as on March 31, 2022. Adjacently, the bank has been gradually expanding its presence across secured segments – which constitute ~52% of the overall loan book as on June 30, 2025. Within secured segments as well, the bank is present across mortgage (Housing + Loan against property [LAP] + Construction), wholesale banking (including small and medium enterprises and non-banking finance companies), vehicle and gold segment.

 

On the liability side, the deposit growth has remained steady and capitalisation has been maintained at comfortable levels.

 

Due to ongoing issues like overleveraging and other operational disturbances plaguing the microfinance segment, the bank’s gross and net non-performing assets (GNPA and NNPA) remained elevated at 5.0% and 1.4% respectively, as on June 30, 2025, as compared to 4.7% and 1.3%, respectively as on March 31, 2025 (3.8% and 1.1% as on March 31, 2024). The efforts made by the bank in the past few years towards strengthening its underwriting policies and risk monitoring mechanisms and, investments made in technology for higher efficiency and oversight – are expected to benefit the bank’s operations in the long run. In the near to medium term, however, external challenges impacting the unsecured asset classes, particularly microfinance segment, remain a monitorable.

 

Profitability was stable with return on average assets (RoAA) of 1.5% for fiscal 2025, higher than 1.3% for fiscal 2024. However, this was supported by one time income received in the form of claims from credit guarantee fund for micro units (CGFMU), Assam relief fund and emergency credit line guarantee scheme (ECLGS) to the tune of ~Rs 713 crore. In first quarter of fiscal 2025, RoAA stood at 0.9% (annualized).

Analytical Approach

Crisil Ratings has considered the standalone business and financial risk profiles of Bandhan.

Key Rating Drivers - Strengths

Adequate capital position

The bank’s networth remains comfortable in relation to its scale of operations, which aids its overall financial risk profile. Reported networth was Rs 25,010 crore and tier I and overall capital adequacy ratios (CAR) were 18.3% and 19.4% (including profits), respectively as on June 30, 2025. On March 31, 2025, networth, tier I and overall CAR were Rs 24,605 crore, 17.9% and 18.7%, respectively (Rs 21,610 crore, 13.8% and 14.7% respectively as on March 31, 2024). The improvement in CAR between March 2024 and March 2025 was supported by reversal of risk weights on the Emerging enterprise banking (EEB) book from 125% to 100% or 75% based on loan categorization, effective February 2025. Networth coverage of NNPAs was 14.3 times as on June 30, 2025, compared with 14.5 times as on March 31, 2025, and 16.0 times as on March 31, 2024.

 

Over the medium term, the bank’s capitalisation is expected to remain adequate in relation to its scale and nature of operations.

 

Stable resource profile; ability to restore the share of CASA in overall deposits remains a monitorable

Bandhan had a total deposit base of Rs 1,54,670 crore on June 30, 2025 – which marks a growth of 16.1% (year on year). Net credit to deposit ratio reduced to 83.1% as on same date as compared to 87.3% as on March 31, 2025 and 89.6% as on March 31, 2024.

 

The bank has a granular deposit profile with a stable share of retail deposits (current account and savings account [CASA] + retail term deposits), which stood at 68% of the total deposit base as on June 30, 2025 (69% as on March 31, 2025). The share of CASA deposits stood at 27.1% (Rs 41,860 crore) of total deposits as on June 30, 2025, compared with 31.4% as on March 31, 2025 (Rs 47,437 crore), and 37.1% as on March 31, 2024 (Rs 50,151 crore). Similar to the trend observed for the overall banking sector for this period, the decline in CASA was on account of reduction in the savings interest rates with effect from May 2025 which resulted in some savings accounts getting converted to term deposits.. For Q1 2026, cost of funds was 7.0% (annualized) as compared to 7.2% for Q4 FY25. It was 7.1% and 6.6% for full fiscal 2025 and 2024 respectively.

 

Nevertheless, the bank has been taking initiatives like launching targeted marketing campaigns and improvising digital channels to improve the CASA levels. However, the effectiveness of the measures taken in restoring CASA levels will need to be seen.

 

Market position supported by established track record in the micro-loan segment alongside increasing diversification towards secured asset classes

As on March 31, 2025, gross advances increased to Rs 1,36,990 crore clocking 9.8% growth as compared to 14.3% witnessed in fiscal 2024. As on June 30, 2025, Bandhan’s gross advances stood at Rs 1,33,620 crore having fallen by 2.5% in the first quarter of fiscal 2026, largely due to negative growth in EEB segment.

 

The EEB portfolio comprised 40% of the overall advances as on June 30, 2025, and remains the largest component of the bank’s asset book. The bank maintains its competitive edge in the microfinance sector through strong reach and local knowledge, especially in east and north-east India, which accounted for ~38% of the overall loan portfolio (41% as on March 31, 2024). While the low credit penetration in the east and northeastern belt offers a huge untapped market potential and the bank’s long-term association with its customers of this region gives it an advantage, Bandhan’s prudence in shortlisting regional pockets of growth within this geographical belt remain crucial.

 

In terms of product suite, EEB group loans comprise 25% of the bank’s advances as on June 30, 2025 (reduced from 33% as on March 31, 2024) while EEB individual loans make up 14% (17% as on March 31, 2024) of it. Over the years, the bank has endeavored to diversify into non EEB segments as well. The same is showcased through the increase in share of wholesale banking portfolio to 28% as on June 30, 2025 from 22% as on March 31, 2024 and share of mortgages portfolio remaining stable at 24% during this period. Meanwhile, the share of the EEB portfolio has declined from 50% to 40%. This transition to garnering a higher share of secured assets, is expected to impart higher diversity to the bank’s business profile and, higher stability to the overall asset quality on a steady state basis.

Key Rating Drivers - Weaknesses

Moderate asset quality metrics and profitability

The bank’s asset quality, though stabilizing, has remained vulnerable ever since the outbreak of the pandemic.  Situations such as multiple socio-political issues, elections as well as natural calamities in Assam and West Bengal, where Bandhan Bank had a dominant presence caused the reported NPAs of the bank to remain volatile between fiscals 2020 and fiscal 2023. Thereafter, owing to improved resolution, cumulative write-offs of Rs 9925 crore and sale of NPAs worth Rs 3036 crore to ARCs - over fiscals 2023 and 2024, the GNPA and NNPA declined from 6.5% and 1.7% on March 31, 2022, to 3.8% and 1.1%, two years later. Over fiscal 2025, however, reported GNPA and NNPA rose again to 4.7% and 1.3% (inclusive of write off of Rs 2410 crore) on account of ongoing stress in the microfinance and unsecured segments. However, slippage ratio improved to 4.4% of net advances in fiscal 2025 from 4.9% in fiscal 2024 and 10.1% in fiscal 2023. As the ground level challenges persisted over Q1 2026 as well, GNPA and NNPA further rose to 5.0% and 1.4%, respectively, as on June 30, 2025.

 

Within the EEB segment, reported GNPA was 9.0% as on June 30, 2025 vis-à-vis 8.4%, a quarter ago (5.2% on March 31, 2024).  Herein, total stressed asset portfolio ( NPA+ SMA 1+ SMA 2)  remained stable at Rs 5770 crore (~11% of the total EEB book as on June 30, 2025) as compared to Rs 5750 crore and Rs 4090 crore as on March 31, 2025 and March 31, 2024 respectively (10.2% as on March 31, 2025, and 6.6% as on March 31, 2024). In mortgages segment, GNPA inched up to 2.5% as on June 30, 2025, from 2.3% as on March 31, 2025 (1.8% as on March 31, 2024). In retail book comprising of gold, vehicle, personal loan and others, GNPA stood at 3.0% as against 2.5% as on March 31, 2025 (2.2% as on March 31, 2024). Commercial book including MSME, reported a GNPA of 2.0% as on June 30, 2025, and March 31, 2025 (3.6% as on March 31, 2024)

 

While the bank has been implementing various qualitative measures to strengthen underwriting and collection practices within vulnerable borrower groups, its effectiveness is yet to be determined given the dynamic external environment.

 

In terms of profitability, pre provision profitability (PPOP) metric remained static at 4.0% for fiscals 2025 and 2024, though down from 4.8% in fiscal 2023 and 6.3% in fiscal 2022 – primarily on account of rise in cost of funds and operating expenses and partly due to reduction in non-interest income. Also, as the share of lower yielding secured asset classes has increased in the overall advances, the effective interest income from advances has reduced. Excluding the one-off gains in terms of claims received from various guarantee schemes in fiscal 2025, this metric would stand at 3.7%. The effect of flat PPOP was offset by a reduced credit cost of 2.0% (including the one-time benefit of Rs 123.3 crore received as provisional part claim payout under ECLGS) for fiscal 2025 as against 2.2% for fiscal 2024 and 2.8% in fiscal 2023. Resultantly, RoAA improved to 1.5% for fiscal 2025 from 1.3% for the previous year (1.5% in fiscal 2023).

For first quarter of fiscal 2026, pre-provisioning profit to total assets was reported at 3.5% (annualized) as compared to 4.4% (annualized) in first quarter of fiscal 2025. Credit cost for the corresponding periods was 2.4% (annualized) and 1.2% respectively, yielding an RoAA (annualized) of 0.8% and 2.4%.

 

Considering the ground level challenges being witnessed by the microfinance segment, the degree of its impact on asset quality and overall profitability, will remain a key monitorable.

 

Regional concentration and exposure to local socio-political risks inherent in the micro loan business

Bandhan has strong presence in East and North-East India, in the micro loans business, which comprised around 69% of its portfolio as on June 30,2025. The bank is exposed to geographical concentration risk inherent to the segment. As of June 30, 2025, 40% of its microfinance loan exposure, which is the largest loan portfolio, was in West Bengal alone. The concentration of the overall portfolio within top five states namely West Bengal, Maharashtra, Bihar, Gujarat and Madhya Pradesh was 58% of gross advances.

 

Recently, due to borrower overleveraging and other ground-level operational challenges across the microfinance and adjacent segments, there has been a spillover effect of the stress in certain geographies, thereby putting pressure on collections. A significant portion of bank’s portfolio comprises loans to clients with modest credit risk profiles and limited access to formal credit with sensitive cash inflows. Nevertheless, this segment of borrowers continues to be subjected to idiosyncratic risks on account of socio-political factors. As on June 30, 2025, 59% of the bank’s borrowers were unique to Bandhan wherein it is the sole lender and close to 4% had 4 or more loans (including that from Bandhan)

 

Historically, the microfinance sector has witnessed major disruptive events the Andhra crisis in 2010, demonetisation in 2016 and most recently, the pandemic in March 2020. In addition, the sector has faced issues of varying intensity in several geographies adversely affected the business models of MFIs by impairing their growth, asset quality, profitability and solvency. Earlier, due to continued unrest in one of its core territories of Assam since 2019, followed by ground level challenges in West Bengal and Manipur, the bank’s asset quality was structurally impacted and the bank had to cumulatively write off portfolio worth Rs 15,207 crore between fiscals 2021 and 2024. Post this, the bank consciously reduced its cumulative exposure to Assam and West Bengal to 26% as on June 30, 2025, vis a vis 43% as on March 31, 2020.

Liquidity: Strong

Bandhan's liquidity coverage ratio (LCR) was healthy at 178.3% as on June 30, 2025, as against a regulatory stipulation of 100%. Further, in the overall deposit base, the share of retail deposits (CASA plus retail term deposits (< Rs 3 crore)) remains high above 68%. In addition to having excess statutory liquidity ratio (SLR), interbank lines, line of credit facilities, the bank also has access to refinance facilities.

 

Environment, social and governance (ESG) profile

Crisil Ratings believes Bandhan’s ESG profile supports its already strong credit risk profile.

 

The ESG profile of financial institutions factors in governance as a key differentiator. The sector has reasonable social impact because of its substantial employee and customer base, and it can play a key role in promoting financial inclusion. While the sector does not have a direct adverse environmental impact, the lending decisions may have a bearing on environment and other sustainability-related factors.

 

Bandhan Bank has demonstrated an ongoing focus on strengthening various aspects of its ESG profile.

 

Key ESG highlights:

 

• The direct environmental risks associated with the bank are low, given its nature of business. However, it faces considerable environmental risks through its lending and investment activities. Around 15% of its loan portfolio is towards high polluting sectors (such as chemicals, agriculture, vehicles), which is lower compared with peers.
• The bank has high exposure towards sectors with high positive societal impact with exposure to MSME and agriculture sectors at ~43%. Further, its customer complaint intensity (at ~1.1 complaints per Rs crore of loans and advances) was higher than the peer average, which is an area of improvement.
• The bank has high penetration in rural and semi-urban areas (~33% and ~37% of its branches are in rural and semi-urban areas, respectively)
• Majority of its board and board committees comprise of independent directors coupled with the presence of an independent chairperson (~64% of the board is independent), though share of women directors on board was low at ~9%. The bank has a dedicated investor grievance redressal mechanism, and the disclosures put out by it are extensive.

 

There is growing importance of ESG among investors and lenders. Bandhan’s commitment to ESG will play a key role in enhancing stakeholder confidence, given the high share of foreign investors as well as access to both domestic and foreign capital markets.

Outlook: Stable

Crisil Ratings believe Bandhan Bank will continue to maintain its established market position in micro- loan segment, strong capitalization and healthy resource profile over the medium term.

Rating sensitivity factors

Upward factors

• Significant and sustained improvement in asset quality reflected in total stressed assets (GNPAs + restructured portfolio) reducing significantly to, and remaining below, 3% on a steady state basis.
• Revival in overall profitability evidenced by material and sustained improvement in RoA.

 

Downward factors

• Prolonged stress in asset quality constraining the overall profitability of the bank
• Overall capital adequacy ratio (CAR) remaining below 15% for a prolonged period

About the Bank

Bandhan was set up in 2006 as Bandhan Financial Services Pvt Ltd (BFSL). The company was the largest NBFC-MFI in India until 2014 after which, it became the first entity to receive an in-principle universal banking license from the Reserve Bank of India.

 
Bandhan was incorporated in December 2014 as a subsidiary of Bandhan Financial Holdings Limited (BFHL), which is 100% held by BFSL. After it commenced operations in August 2015, BFSL's entire microfinance portfolio was transferred to Bandhan. The bank is headquartered in Kolkata and offers group-based individual lending services in the microfinance segment. In 2019, the bank acquired Gruh with the objective to diversify operations geographically and across asset classes. This facilitated the reduction in promoter shareholding to the stipulated level. It operates through a network of 4594 branches, business units, and GRUH centres, spread across 35 states and union territories.

Key Financial Indicators

As on / for the period ended		Mar-25	Mar-24	Mar-23
Total assets	Rs crore	191,476	177,841	155,770
Total income	Rs crore	24,915	21,034	18,374
PAT	Rs crore	2745	2,230	2,195
Gross NPA	%	4.7	3.8	4.9
Overall capital adequacy ratio	%	18.7	14.3	19.8
Return on assets	%	1.5	1.3	1.5

 

As on / for the period ended		Jun-25	Jun-24
Total assets	Rs crore	189,400	173,290
Total income	Rs crore	6,201	6,082
PAT	Rs crore	372	1063
Gross NPA	%	5.0	4.2
Overall capital adequacy ratio	%	19.4	15.0
Return on assets	%	0.8*	2.4*

*Annualised

Any other information:

Crisil Ratings has also taken note of the resignation of Mr Gopal Krishnan Santosh from the position of head of consumer lending and mortgages.