Bandhan Bank Cuts RoA Guidance Amid Cost Surge

Bandhan Bank has revised its return on assets (RoA) projection downwards by 40 basis points to 1.2-1.4% for the current fiscal year. This adjustment stems from increased technology-linked expenses and higher funding costs, attributed partly to supply chain disruptions in West Asia. The bank's leadership acknowledged that achieving its previously stated RoA aspiration of 1.6-1.8% by the exit of Q4 FY2027 has become more difficult due to these external pressures.

These rising costs, particularly for installing a new loan origination system aimed at launching new products and cross-selling, have pushed the operating expenses to asset ratio to 4.3%, exceeding the initial guidance. While these technology investments are necessary for future growth, the bank anticipates that improved operating efficiencies will only begin to materialize after FY2028, following two years of substantial investment.

The financial impact of these changes has already been noted, leading to a significant decrease in the bank's market capitalization. The evolving energy crisis also presents a potential risk, with its full impact on customer sentiment, operating costs, and overall profitability across the banking sector remaining uncertain at this juncture.