How Chandra Shekhar Ghosh plans to stay focused on country roads

About 71% of Bandhan's banking outlets are located in rural and semi-urban areas

On Monday, Bandhan Financial Holdings Ltd (BFHL), the holding company of Bandhan Bank, sold nearly 21 per cent to comply with the Reserve Bank of India’s (RBI) ownership rules, and raised Rs 10,500 crore. In terms of percentage shareholding, the sale was one of the largest through block deals, involving marquee investors such as GIC Pte, BlackRock and Temasek. That this deal was executed during the Covid-19 pandemic made it more impressive.

Chandra Shekhar Ghosh, 60, managing director and chief executive officer, Bandhan Bank, met investment bankers last Friday after market hours and the stake sale was through Monday morning. “The Bandhan story is clear to investors because we periodically talk to them. The only thing that was conveyed this time is that we would like to do the stake sale in one go. Investors liked this approach,” Ghosh explains. He had it meticulously planned. “I generally have a Plan A, B and C. This was part of Plan A,” he says.

As was the acquisition last year of HDFC Limited-owned Gruh Finance — an affordable housing finance company — through a share-swap. The merger reduced BFHL’s stake to 60.96 per cent from 82.26 per cent. The current stake sale has brought it down to 40 per cent.

RBI’s licensing norms require any bank offering “universal” services to reduce the promoter’s stake to 40 per cent three years from the date operations begin, and Bandhan Bank will shortly be completing five years. Overshooting the time-frame landed Bandhan Bank in trouble last year when the central bank imposed restrictions on branch expansion.

Towards the end of February, however, the RBI lifted that restriction, and within days 125 banking outlets were opened. As on March 31, 2020, the total number of banking outlets — including branches, banking units and home loan centres — stood at 4,559, up from 4,000 in the previous year.

So when did Ghosh decide on the BFHL stake sale? “That is a secret,” he insists, but admits that if collections in June had not picked up the way they did in June to more than 70 per cent, he might not have had the confidence to move ahead.

“In April and May, there was lockdown and borrowers told us that they would repay once the lockdown was lifted. We have faced floods and cyclone in the past, but not two months of lockdown. But the way people came forward to repay in June proved that our model was right,” he says.

Ghosh has experience in moving ahead in the middle of crises, just as he did when he set up his bank. Rewind to 2010. Andhra Pradesh, a major centre for the microfinance industry, passed an ordinance barring microfinance institutions (MFIs) from collecting dues and disbursements after several borrowers committed suicide on account of high interest rates and alleged coercive collection methods. Yet, against this backdrop, Bandhan applied for a bank licence in 2011. It’s another matter that the crisis changed the industry pecking order and Bandhan Financial Services toppled SKS to become India’s largest MFI.

Approval for the bank came in 2014 and Bandhan Bank opened for business on August 23, 2015. According to its 2019-20 annual report, total business has crossed Rs 1 trillion.

Ghosh has the road ahead mapped out; migrating some micro credit borrowers to MSME loans and micro housing loans will be an important part of the business plans over the next three to five years.

“There are borrowers who started with a loan size of Rs 3,000 to Rs 5,000 and now they are taking loans of Rs 1 lakh to Rs 1.5 lakh. These borrowers can migrate to MSME loans to expand their businesses,” he says. Microloans account for 64.29 per cent of Bandhan Bank’s total advances.

For such borrowers, money lenders are often the only port of call. That is where Bandhan Bank will step in. The model is being tested in rural Bengal and the response is huge, says Ghosh.

About 71 per cent of Bandhan’s banking outlets are located in rural and semi-urban areas. With increasing purchasing power in rural India and the untapped opportunities it offers, Ghosh plans to stay focused on country roads.