India Insight

Bandhan eyes India’s banking league with RBI licence

April 4, 2014

Kolkata-based Bandhan Financial was little known in India’s corporate arena. But a new banking licence from the Reserve Bank has given Managing Director Chandra Shekhar Ghosh and his 13,000 employees a reason to cheer.

“This is a different type of win. In the last 13 years they (employees) have been working hard and now they have got the recognition,” said Ghosh. “I hope that this is not a big challenge, the challenge is to develop the skills of the staff, it will take some time.”

The Reserve Bank of India on Wednesday granted provisional bank licences to Bandhan and infrastructure lender IDFC, preferring them over bigger corporate applicants and paving the way for new banks in India after a decade.

Started in 2001 in West Bengal, Bandhan offers small loans to India’s lower-middle class borrowers through its network of more than 2,000 branches. Present in 22 states, the lender had more than 5 million borrowers and outstanding loans of 57 billion rupees ($950 million) as of February, according to information available on its website.

Bandhan’s business model is similar to any other microfinance institution — a network of field workers collects and disburses loan amounts as low as 10,000 rupees ($166). The annual interest rate is about 22 percent and borrowers make weekly repayments.

The microfinance business will function as a division of the new bank, Ghosh said, and Bandhan will open new branches when required to offer banking services to its new customers and existing 5.5 million borrowers.

Because of the rural reach of the lender, Bandhan relies on its thousands of employees all over India. Bhaskar Dhar, one of the senior executives in Delhi, manages a team of 1,000 workers in 231 branches spread over eight states.

Dhar, who started working at Bandhan in 2005, never thought his organisation would one day rub shoulders with India’s top banks. “It has become a sentimental issue, everyone is very happy,” Dhar said at his Delhi branch office, adding that he cried when he heard about the bank licence.

With the new licence Bandhan is likely to join the family of more than 50 lenders in India, which have been struggling because of a slowing economy, high inflation and project delays. Non-performing assets, or bad loans, remain a concern.

Still, some like Prateek Atri prefer working at a smaller institution such as Bandhan and not one of India’s top banks. The 27-year-old joined the microfinance institution through campus placement in 2011 after he received his MBA degree from a college in Jaipur, capital of the desert state of Rajasthan.

“To be really frank, my designation was very good for my age. At my age 150 people under me was a big thing,” said Atri, who handles 300 employees now. “The level of experience that I get here I cannot get anywhere else.”

Employees such as Dhar and Atri operate from one of Delhi’s 16 branch offices in densely populated  Shahdara area in the eastern part of the city. Located inside a multi-storey house in a residential neighbourhood, the office is surrounded by partially built homes, department stores and beauty parlours in a labyrinth of lanes.

The large room on the ground floor of the house extends into a room where employees sleep on unfurnished wooden beds. Several plastic chairs are placed next to a notice board which displays the schedule of various workers. While loan entries are recorded in the computer, passbooks are still maintained manually with a photo of borrower pasted inside.

While some borrowers waiting at the Delhi office for loans were not aware that Bandhan has obtained a new licence, Najma Khatun was happy that the microlender will now become a bank.

Around half of India’s population does not have a savings bank account and Khatun, who is among those, was applying for her fourth Bandhan loan of 25,000 rupees ($416) for her son’s workshop.

When asked why she did not approach a bank such as State Bank of India for loans, she said: “We don’t know anything about them (banks), we only know about Bandhan”.

(Editing by Robert MacMillan. Follow Aditya on Twitter @adityayk and Robert @bobbymacreports | This article is website-exclusive and cannot be reproduced without permission)

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