Bandhan Bank says will tap rural markets to stay as most profitable lender

Indian micro-financier Bandhan Bank Ltd. will diversify lending and selectively tap more rural markets to cement its position as the nation’s most profitable lender after loan repayments improved.

“There is a big demand,” founder and Chief Executive Officer Chandra Shekhar Ghosh said in a recent phone interview. “Rural India is untapped and people there are not getting credit service. Lifestyles are going to change and they also have business needs.”

Bandhan Bank, which received $1.4 billion from investors including BlackRock Inc. and Singapore’s GIC Pte in August, aims to maintain a 4% return on assets by diversifying. It plans to lend to less-risky sectors such as gold, as well as providing home and car loans. Currently the lender’s unsecured microfinance loan book stands at around 62%, Ghosh said.

Ghosh expects repayment levels to return to “normal” in the next three months after rising to about 95% from October. During the early months of lockdowns, collections had dropped to roughly 75%, he said.

The CEO is among business leaders, policy makers and politicians pinning their hopes on a strong recovery in rural India as bountiful rains have set the stage for another year of record crops. Higher disposable incomes for farmers may boost demand from automobile to cement to gold jewelry.

Despite the rise in repayments, the ongoing coronavirus pandemic could slow Bandhan’s loan growth to 20% this year, Ghosh said, from an average of more than 30% over the last three years.

Bandhan Bank has been doing business with small borrowers such as tea-vendors and vegetable sellers for almost two decades. It was a grant-receiving microlender between 2001 and 2009, and then got a formal license to operate as a shadow lender and recently as a fully-fledged bank in 2015.

Converting into a bank helped Bandhan to create a relatively low-cost deposit base with a high-yielding lending business to micro borrowers, helping its margins. Shares in Bandhan Bank were up 2.3% at 12:23 p.m. in Mumbai compared with a 3% rise in the main banking gauge.

The latest capital raising took place after the central bank had restricted branch expansion by Bandhan Bank as the founding firm failed to lower its stake to the target 40% last year.

It then agreed to combine with mortgage financier Gruh Finance Ltd. in a $11.7 billion deal to pare the founder’s stake, following which the regulator partially relaxed its curbs on the lender. Some of Bandhan’s Bank profitability metrics, including return on assets and return on equity, are now the highest among Indian lenders.
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