Bandhan sets September deadline for bank

Micro-financier to start banking foray with a bang with 600 branches

About a year ago, Bandhan Chairman Chandra Shekhar Ghosh was a call away for most of his acquaintances. At a public interaction, he had said, “I am so accessible that one can find my mobile number even with the local vegetable vendor.”

Through the past year, however, the voluble micro-financier has turned into a reticent boss, with the deadline to set up India’s newest bank looming large. On April 2, 2014, the Reserve Bank of India (RBI) granted an in-principle approval to Bandhan to set up a bank. As the approval is valid for 18 months, after April, Bandhan would have barely six months to start a bank.

At the outset, Ghosh has set an ambitious target: Bandhan plans to open 600 branches at a go, a difficult target even for an established bank. “It is a big feat to open 600 branches at a go. I guess it will be a record of sorts. Starting from physical infrastructure to software integration, the task is not easy. However, Ghosh is confident of meeting this target, even with so many challenges,” says Pradip Kumar Saha, nominee-director of SIDBI on Bandhan’s board.

STEPS TO A BANK

• Apr 2014: Bandhan gets in-principle nod for banking licence
• May 2014: Announces  appointment of Deloitte as advisor for formation of Bandhan bank
• Aug 2014: Announces appointment of Aon Hewitt  to design and implement a compensation strategy for  workforce
• Sep 2014: Announces the appointment of FIS as technology partner
• Sep 2014: Announces appointment of Ogilvy & Mather for brand building
• Jan 2015: Announces IFC & GIC SI will commit fresh equity investment of Rs 1,600 crore in Bandhan
• Mar 2015: Announces appointment of Madison Media for formulating an advertisement strategy

“We will be able to transform into a bank by September,” says Ghosh.

When Bandhan secured a banking licence, its biggest challenges included setting up an information technology network for core banking solutions, acquiring a skilled workforce, foraying into newer domains such as treasury operations, and brand building. So far, Bandhan has followed a simple model of branch-level lending and collection in groups.

To deal with the new segments, Bandhan has roped in five specialised agencies.

It has appointed Madison Media, which had handled the media operations of the Bharatiya Janata Party during the Lok Sabha elections, for an advertising campaign. Ogilvy & Mather will handle brand-building, which will entail designing a logo and framing advertising strategies. FIS, a US-based banking and payment technology solution provider, is looking at implementing a low-cost information technology (IT) platform, a vital area for Bandhan. Aon Hewitt, a human resource consulting arm of London-based Aon Plc, will design a compensation programme for employees. Deloitte, Bandhan’s consultant for its banking licence application, has been roped in as a consultant for the banking foray.

Bandhan has constituted a 25-member team to look after its core operations, with most  being roped in from top private and public sector banks. It has also recruited a fresh workforce of about 3,500, taking its total staff strength to 16,000.

It is expected Ghosh will be at the helm of affairs at Bandhan, though he says a decision on the matter would be taken at the board level.

As a microfinance institution, Bandhan closed 2014-15 with loans dues of about Rs 9,500 crore, 30 per cent more than in the corresponding period a year earlier. Once banking operations begin, these would be shifted to the bank’s books. At a branch level, about 13,000 field staff members of Bandhan have been trained in banking activities.

Ahead of its banking foray, Bandhan has also raised its core capital by about Rs 1,600 crore, with capital infusion from International Finance Corporation (IFC), an arm of the World Bank, and GIC (Singapore’s sovereign wealth fund).

Following the investment, Bandhan’s capital base stands at about Rs 3,200 crore. According to Ghosh, the fresh capital would go towards adding new branches for a pan-India presence, along with an IT network and human resources, among other things.

While initially staying away from corporate banking, Bandhan is likely to focus on retail banking for middle- and lower-income group borrowers. “Bandhan’s biggest strength is rural presence, which helped it get a bank licence. As a bank, it is expected that will continue to be a focus area,” said Saha.

As India’s newest bank takes shape, backed by about six million borrowers in the hinterland, it is widely expected the country’s banking system is in for a change; more inclusive and expansive, at the least.