Bandhan gets final RBI nod, to start bank on August 23

To begin with, 40% of branches to be in unbanked areas, says Ghosh

After more than a decade, a new private sector lender will start operations from August 23. The Kolkata-based microfinancier, Bandhan Financial Services, received the final approval from the Reserve Bank of India (RBI) on Wednesday morning.

The bank won’t lend to the corporate sector — at least for the time being — and focus on its strength, that is, serving the bottom-of-the-pyramid category. The lender will start with 600 branches, of which 200 will be in metro and urban areas and the remaining in semi-urban and rural areas. “While RBI norms require us to open 25 per cent of the branches in the unbanked areas, we will open 40 per cent of the branches in those areas,” Chandra Shekhar Ghosh, founder and chairman of Bandhan, told Business Standard. The bank will have 250 automated teller machines to start with.



The bank will be profitable from day one as the present microfinance entity is in the black. It made a Rs 428-crore profit in 2014-15. Ghosh admitted the initial period would be challenging as the new bank would not have low-cost deposits — a key component of the liabilities of a bank, crucial for profits. The lender expects it will take two years to build up a current and savings account (Casa) deposit base that will, in turn, help it reduce lending rates. The microfinancier’s cost of the deposit, which raises funds from banks, is 12 per cent and it charges 22.4 per cent for loans. However, bad loans are only 10 basis points of its advances. Bandhan Bank will start with a Rs 11,000-crore book and capital of Rs 3,200 crore — far above the regulatory requirement of Rs 500 crore.

STEPS TO A BANK

• 2001: Starts microfinance operations in 2001 with one branch
• 2011: Became the largest microfinance lender in the country
• 2013: Applies for a universal bank licence
• 2014: Gets in-principle nod for banking licence
• 2014: Announces appoin-tment of Deloitte as advisor for formation of Bandhan Bank
• 2014: Announces appointment of Aon Hewitt to design and implement a compensation strategy for workforce
• 2014: Announces the appointment of FIS as technology partner
• 2014: Announces appointment of Ogilvy & Mather for brand building
• 2015: Announces IFC & GIC SI will commit fresh equity investment of Rs 1,600 crore in Bandhan
• 2015: Announces appointment of Madison Media for formulating an advertisement strategy
• 2015: Gets final approval from Reserve Bank of India; to start operations in August

Bandhan recently completed raising Rs 1,020 crore in equity from International Finance Corporation, Singapore's sovereign wealth fund GIC and state-run Small Industries Development Bank of India. It hopes to increase its customer base to 10 million when it starts operations from 6.6 million now.

“We aim to double our customer base in two years,” Ghosh said. “Our target is to increase the number of customers and not the loan book.”