DSIJ Mindshare

Banking On Bandhan

As a microfinance company, you have grown by leaps and bound. Over to banking, how strategically are you placing yourself to become a bank from a microfinance institution?

 As a microfinance institution, we are providing services to the people who do not have bank account or access to banking services. So, as a bank we will be able to provide full financial services to the people.

How prepared is Bandhan to foray in the banking segment? Could you tell us your plans in terms of infrastructure and how much of the current infrastructure will be utilized for the bank’s purpose?

We have around 2016 microfinance branch offices across 22 states and union territories, 13000 employees, 55 lakh customers and outstanding loan portfolio of `6,200 crore. After we become a bank, we will provide all banking services to our existing customers including savings mobilization. We will see how to provide other B2B commercial services like remittance and insurance along with other services. Of course our microfinance infrastructure and bank infrastructure would be different. For banking, a new infrastructure would be preferred.

We are now in the process of geo mapping which will help us in deciding how many branches to open to start with. Training has always been our focus area. Bandhan has an exclusive training cell comprising 41 trainers. We have 8 fully residential training centres wherein about 1,500 employees are trained every month. All our branches are computerized and all data would be digitised. We are also looking for consultants to provide IT services for our banking operations.

What about the fund raising plans. Will there be any CRR, SLR requirements? How ready are you on the fund raising plans and have you already arranged for these funds?

There is no issue on the capital part. The minimum capital requirement as stipulated by Reserve Bank of India is `500 Crore and we already have `1,200 crore. In the next few months we will get a clear idea about how much more capital would be needed. On the basis of need estimation out future course of fund raising will be decided.

Will there be any benefit on the cost of borrowing for Bandhan Financials as you are shifting to a bank?

Yes, as of now we are borrowing from the banks at a rate of interest of around 13 to 14 per cent. As we become a bank the cost of borrowing would reduce. At present, our interest rate for business loan is 22.4%. Banking licence will further help us to reduce interest rate, as we will not be dependent upon banks for funds.

Now when the funding is taken care off even for advances, a major problem that banks are facing right now is NPA level. How are you going to tackle this? If you consider this as MFI, you are rightly placed but if in banking how are going to manage the NPA levels?

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Is NPA an issue pertaining to banks or a factor of the customers? This is how we will be looking at NPAs. If we maintain good customer relationship and understand the need of customer, we will be able to provide the services on time. The customer would also repay on time. The MFIs have low NPAs, because we keep interacting with our borrowers on a weekly basis. As a bank, we will like to keep in constant touch with our borrowers, be it retail or corporate client, to check bad loans.

Are there going to be any major management level changes in Bandhan Financial services? Any additions required?

Presently we are not contemplating any major change. We are an organisation of 55 lakh existing customers and adding around one lakh new customers every month. It is happening because of a strong management team, otherwise it would not have been possible. We already have an experienced team working on this front.

Rural focus is the major criteria on which the banking licence has been granted to you. Do you think that there is a good amount of penetration required in rural areas and also a good amount of scope for development?

You know that about 70 per cent of our operations are in rural areas, with 45 per cent in unbanked areas. In that case we are focusing in the rural areas. So, penetration of rural or urban area is not an issue for Bandhan as a bank.

Your company has appointed Deloitte as consultants. What sort of recommendations have they provided till date?

The issue is how to develop a banking model, keeping in mind our core activities. We wouldn’t dilute our reach in unbanked and rural areas. As a bank, we would have two wings, a MFI and a banking wing. The banking wing would look after corporate and non-MFI retail clients. We would continue with doorstep banking services. About 60 per cent of our lending would always be towards the priority sector.

You mentioned that you wanted to bring down the lending rates for the poor. How are you going to manage that? And are you focusing on a volume business rather than a value business?

There are two factors here. Interest rate for micro finance is high because banks are providing us loans at a high rate. When we become a bank, we will be able to directly mobilize fund from public. This would help us in reducing the interest rates. So cost of fund will significantly come down.

Secondly, when we become a bank, we will grow in other areas like SME. As we become a bank there will not be the upper cap of `50,000 and hence we could cater the SME area as well. We will be eligible to disburse more than `50,000 to the SME area which will also help us to reduce the operational cost. This higher ticket lending would help us to balance the cost of funds and the cost of operations. So it’s not only about volume business, we have got a lot of value in it.

Do you think only SME will be driving the growth or is there any other large corporate that will be getting funds from your side

Corporate lending will not be our focus area as there are many lenders in this segment. I am of the view that, we would be more focused on micro levels and SME levels. There are a large number of SME players who are not getting formal access to funds they require.

There are many public sector banks which are already in the rural areas. Do you feel there is good amount of competition from public sector banks to you?

Bandhan is present in the unbanked area. So here, no other bank is our competitor. Other point is that we are working with a low income base which is largely untapped by the existing banks. For example the interior parts of north east are not even reached by these players. So I do not feel that there is going to be much competition from existing players.

But do you feel that there is lack of awareness in these areas about the banking system. Is there any particular strategy that you are implying to make the customers aware about the banks working model?

As a MFI, before lending to the customer we conduct a two week awareness programme. When we become bank, we will have to provide education to the customers to tell them about other products as well. We have been working on that. If we look at the current situation, what are the challenges you will be having for the next three years and what are the challenges you are expecting from this banking foray? Main challenges would be to keep the costs under control in banking foray, as we have been practicing since inception in Bandhan. Skill upgradation of existing staff for mobilizing deposit is also a challenge. They have so far been working in the area of credit disbursement. Besides these two, there are hardly any other critical challenges.

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