Not only has he not used his bandana against Pica but is hardly shown wearing it on the arm.. I can't recall if he even had it on the arm.. He usually wears it to defeat the enemies but this time.. Why the exception? Is it because it doesn't look good on the suit he was wearing? If it was the reason it would be the stupidest reason ever! I Might be missing something.. Maybe..
He put it on, right before he executed his Tactics No. 5 and wore it during his last attack on Pica. He just did not need it before this. It was only when Pica started attacking King Riku and Usopp that he needed to be serious and defeat Pica before there were any casualties.
It was not shown explicitly but he put it up at the last page of chapter 777, when he decides to go with plan E (aka plane, seeing he decides to fly through the sky. Sorry for the lame pun, could not help it.) From this point until he defeats Pica he wears his bandana. This is the only time we can see him wear it during the Dressrosa Arc.
As for where he put the bandana during the rest of the arc, it seems like he indeed hid it somewhere beneath his suit, because I can't seem to find a single panel where it was shown.
He took the bandana off at the beginning of chapter 779 after his plan(e) was successful.