Strategy is liabilities-led growth, aim to improve Casa: Bandhan Bank CEO

Mr Ghosh had clearly articulated when he took the decision of retirement by the end of his tenure. He said the bank should decisively come out of the post pandemic problems

Bandhan Bank posted a 47 per cent jump in net profit in the first quarter on lower bad loans. Ratan Kumar Kesh, who became the interim managing director (MD) & chief executive officer (CEO) of the Kolkata-headquartered lender effective July 10, discusses the bank's growth strategy over the medium term in an interview with Manojit Saha in Mumbai. Edited excerpts:

Bandhan Bank is going through a transition phase as a new MD & CEO will be taking charge after Chandra Shekhar Ghosh, the founder, MD & CEO, decided to retire. How will the bank ensure a smooth transition?
 

Mr Ghosh had clearly articulated (his views on this) when he took the decision to retire by the end of his tenure. He said the bank should decisively come out of the post-pandemic problems.
 

Second, he said that leadership layers should be strongly in place.
 

I think after the first quarter results, we can say with a fair degree of confidence that we are definitely out of the Covid pandemic problems. Earlier, you saw signs of improvement, and now you can see we are definitely out of it.
 

I joined the bank five quarters back. A few more important leaders have joined since. So there is a strong mix of experience within the organisation and experience from outside at various levels.
 

We now have a strong leadership layer both at the MD minus 1 and minus 2 levels to take the bank forward. So the leadership is in place which will ensure a smooth transition.
 

This leadership team has also put out the strategy for the next three years – Bandhan 2.0. We prepared the strategy when Mr Ghosh was still around and it got approved by the board.
 

We have a strong board and the board continuity remains to guide us through this journey.

What is the update on the new CEO appointment?
 

The search committee and the board are working on it. We are pretty much on track with the process.

Bandhan Bank was a microfinance institution which was converted into a commercial bank in 2015, and has diversified itself. What more can be done on the diversification front?
 

When we started the operations, the bank was 100 per cent microfinance. Today, we have a sizeable secured housing finance portfolio. Our retail book is growing by 80-85 per cent, which is largely secured (around 70-80 per cent). Commercial banking is growing year-on-year (Y-o-Y) at 30-35 per cent. So, we are below 35 per cent in microfinance group loans.

So far as geographical diversification is concerned, we are well present in terms of branches out of eastern India. We are about 55 per cent outside the east. Both on the lending and deposit side, the contribution of geographies other than the east is fairly strong.

What will be the growth strategy of the bank in the medium term?
 

Our strategy is liabilities-led growth. The deposits will grow faster than the assets. In Q1 our deposits grew 23 per cent and assets grew 21 per cent. We will continue to grow deposits at a faster pace than loans because we also want to bring down the credit-deposit ratio closer to 90 per cent by next year, from 95 per cent now.  

Now we have completed the core banking migration – this will help to garner more deposits. On the current account side we have launched more transaction banking capabilities – trade, CMS (content management system), escrow, foreign exchange, etc. That will give us low cost current account deposits.
 

On the savings side, a lot of affluent customers keep deposits with us but we may not be their primary bank. To become their primary bank, we need to give them more products. We will be launching a few more products for segments like affluent, women, NRI. The new branches that have come up are launching cross-sell products and liabilities products. These will be some of the products that will garner sticky deposits and also generate more income.

What is the proportion of current and savings account (Casa) deposits to total deposit?
 

The Casa ratio is at 33.4 per cent, which has to keep improving. Right now, there is a bit of liquidity pressure in the market. Our medium objective is to keep improving the Casa ratio and go closer to 40 per cent.

What could be the impact on liquidity coverage ratio (LCR) due to recent draft norms?
 

We are currently at 150 per cent LCR. We are doing a detailed evaluation, but broadly the impact (of the new guidelines) will be around 10 percentage points.

On the asset side, what will be the strategy?
 

We will continue to diversify on two aspects. Growth in our microfinance portfolio is at a slower pace than the rest of the book. We will see overall growth of 16-18 per cent. Within retail, we will focus more on secured lending. So our secured loan book is expected to go up, which is currently at around 44 per cent. We aim to go well above 50 per cent (secured loans) by next year. Over the medium term (2-3 years), group loan book share will come down to below 25 per cent.

The asset quality of the microloan portfolio has increased. What has been the strategy?
 

We have put a few important guardrails since April 2023 on microloans. This has helped to improve asset quality. Our SMA (special mention account) pool in EEB (emerging entrepreneur business) has decreased from Rs 2,800 crore to Rs 1,400 crore in the last one year. The fresh slippages have come down from Rs 1,300 crore to Rs 891 crore (in Q1). Disbursement in the EEB segment since FY23, the quality is five times better than pre-FY23 — slippages were 0.4 per cent compared to 1.8-2.0 per cent. As a result, our provisions have come down.