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Bandhan grows, even in conundrum

Written by The Optimist

Bandhan Bank was incorporated on December 23, 2014, as a wholly-owned subsidiary of Bandhan Financial Holdings Limited. It received in-principle approval of the RBI for setting up a universal bank in April 2014 and the final nod came in June 2015. On August 23, 2015, it started its banking operations as one of the two new banks in the country, following RBI’s final green signal. But more possibly, more importantly, it happened to be the first bank to be set up in eastern India after Independence. Its shareholders include IFC, FIG Investment Company, SIDBI, Caladium Investment Plc. Much before the process of giving new banking licenses had begun, Bandhan, the erstwhile largest MFI in the country, had started the groundwork for banking operations. When in January 2011, International Finance Corporation (IFC) had chipped in $35 million (nearly Rs 160 crore) by way of equity in Bandhan Financial Services Private Limited, latter’s net worth went up from Rs 350 crore to close to Rs 510 crore, placing one of India’s largest MFIs on a much stronger footing to seek banking license. It then started focusing on continuous training of its employees through training centres, leadership development institute and improving operational efficiency with the help of trained manpower and adoption of technology. It has paid off. Less than five years after starting banking operations, Bandhan Bank managing director Chandra Sekhar Ghosh can aptly say that the journey could not have been better. Currently, it has 4,559 banking outlets pan India serving 2.01 crore customers. The bank has mobilised more than Rs 57,082 crore. Total advances stand at Rs 71,846 crore, taking the total business to Rs 1,28,928 crore as on March 31, 2020. It has a team of 39,750 employees. Only three years ago, it had 864 branches, 2,546 doorstep service centres, 386 ATMs, 11.34 million customers, fourth largest debit card issuer, a loan book of Rs.22,111 crore and last but not the least Rs 1,112 crore profit in the first full year of operations.

Bandhan Bank Managing Director Chandra Sekhar Ghosh

But this is not the whole story. Recently, as on July 7, this year, Bandhan Bank put out its Q1 update. Advances grew to Rs 74,325 crore as against Rs 63,164 crore YoY & Rs 71,846 crore QoQ. Advances grew at 18 per cent YoY & 3 per cent QoQ. Deposits came in at Rs 60,602 crore compared to Rs 44,796 crore YoY & Rs 57,082 crore QoQ. Deposits grew at 35 per cent YoY & 6 per cent QoQ. Retail deposits as a percentage of total deposits were stable at 78 per cent. The CASA ratio came in at 37.1 per cent vs 34.1 per cent YoY & 36.8 per cent QoQ. Micro banking deposits came in at 5.1 per cent vs 6.2 per cent YoY & 5.7 per cent QoQ. The moratorium availing customers at Bandhan Bank has also come down to 30 per cent from the early nearly 100 per cent. Collection efficiency has thus seen a 70 per cent improvement.

Little wonder, therefore, that investors lapped these up and shares of Bandhan Bank jumped as much as 12.6 per cent to Rs 401.95 on the BSE on July 7 after the bank reported this performance. Mind you that April-June quarter was the time when the country (along with most of the world) was experiencing nationwide Covid-19-induced lockdown and business sentiments were nose-diving.

“After Unlock 1, the collection in Micro Banking loan vertical has shown positive traction from June 1, 2020. There has been a steady improvement in collection efficiency (in value terms) during the month of June 2020 and ended with 68 per cent as on June 30, 2020. This number has further improved to 70 per cent (resulting in the effective moratorium of 30 per cent) as on July 3, 2020. Nearly 70 per cent of customers have started repaying their loans,” explains the bank.

For the record, the collection efficiency for non-micro banking advances for June 2020 stands at 84 per cent (resulting in the effective moratorium of 16 per cent). Interestingly, Bandhan Bank has reported improved collection efficiency in the first quarter of this fiscal for both micro-banking and non-micro banking advances. Quite significantly, microfinance lenders across the board are focusing on repayment collection to stay liquid as their repayment collection was severely hit due to the lockdown. A sectoral study by Microfinance Institutions Network shows that the total value of instalment falling due in April and May was about Rs 4,000 crore while collection efficiency was merely 10 per cent until end-May. The Reserve Bank of India (RBI) has also extended the benefit of a moratorium on loan repayment until August for borrowers in distress. 

If analysts like Motilal Oswal Financial Services are to be believed, Bandhan Bank has created Covid-19-related provisions of Rs 690 crore to deal with higher delinquencies in the near term. And LGD should remain lower (v/s that of peers) due to Bandhan’s strong market share and higher unique customer base.

However, the founder of the bank, Ghosh, could not be complacent or happy with such performances alone. Ghosh has all along been a business leader with a difference, an astute businessman with a social and human face. He, therefore, left no stone unturned to ensure that Bandhan Bank emerges as one of the top job creators even in challenging conditions, helping to lift the pall of gloom in the broader jobs market. 

The bank is driven by the mantra: “Aap ki bhala, sab ki bhalai”. Therefore, the overall negative hiring sentiments notwithstanding, Bandhan Bank has hired 2,500 people for its micro-banking vertical with the lockdown restrictions being eased, while it is in the process of adding another 500 by the end of June.

“This is to boost our repayment collection. Large group meetings are difficult to do now. Our field staff are either meeting borrowers in small groups or approaching them individually. We have decided to lighten their burden by deploying more people,” says the managing director. 

Ghosh founded Bandhan with a vision to be a world-class bank for convenient and affordable financial solutions to all in an inclusive and sustainable manner. He set out on this challenging journey with the mission to provide the customers accessible, simple, cost-effective and innovative financial solutions in a courteous and responsible manner and to create value for all stakeholders through a committed team, robust policies and superior systems and technology. That mission is yet to be accomplished completely.

But it has been a dream run so far. “We continue to remain in the small loan space as that’s our strength and there is no end to the demand for small loans. From serving the bottom of the pyramid, we are gradually inching up, serving the SMEs,” says Ghosh. And going by one of the bank’s recent campaigns, the new focus looks to be on small and medium business owners/budding entrepreneurs in the age group of 25-45 years that are looking for a low-to medium-ticket loan for their businesses. Ghosh minces no words in admitting that there is a vast market and opportunities are endless. “We will be with and by their side, handhold them. This is what Bandhan stands for. We believe in a credit-plus approach,” adds an upbeat Ghosh.

He finds the new banking landscape to be very interesting. He explains: “What we are watching is a conundrum, to use a cliché. While public sector banks are losing their market shares, newer banks of different shapes and sizes are coming into play. The NBFCs are also growing handsomely. And overall, technology is changing the rules of the game very fast.”

He thinks there are three key challenges before the industry — recognition and resolution of bad assets, credit offtake and embracing technology as an enabler. And he loves taking challenges head-on.

For Ghosh, it’s like a journey. There is no destination, there is no end of dreaming. 

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The Optimist

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