Microfinance institution Bandhan, which became a bank recently, faces the financial challenge. The MFI borrows wholesale from either private equities (PEs) or gets a line of credit from banks and then lends retail. Now that Bandhan is a bank, the challenge will be to replace these wholesale funds with retail deposits. It is true that they have over 2000 branches across 22 states and are planning to open 600 more bank branches. But it will still be a challenge for this new bank to raise deposits, especially in urban areas, which is an unfamiliar terrain for these MFIs.
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In an interview to CNBC-TV18's Gopika Gopakumar, Chandrasekhar Ghosh, CMD, Bandhan, who started the organization several years ago, said the bank can offer different services, other than run-of-the-mill, to attract more high net worth (HNIs) and middle class depositors.
He said the bank would target the interior rural and semi-urban areas, where public sector lenders have not been able to penetrate properly. "The middle class families have lot of cash, but they are not getting the desired services from PSU banks. We are working as MFIs in those areas and have a well known brand," he said, adding that these rural areas have larger base. Ten HNIs can give Rs 1 crore each, which could sum up to Rs 10 crore, but here if I go to 1,000 middle class families and get Rs 1 lakh each, it is a bigger amount, Ghosh said.
Bandhan is quite popular in the interiors of West Bengal. But there is a lurking threat of these borrowers taking loans from many MFIs. The other big challenge, according to sources, is the size of loan amount. As per the RBI norm, MFIs have a lending cap of Rs 50,000 per borrower, but banks have no such cap. So Bandhan will have to consciously ensure that it does not overlend to these poor borrowers.
Discussing the increase in loan size, Ghosh said that would depend on the cash flow of customers. "Whatever would be the need of customer, as per their cash flow, we can give Rs 2 lakh or Rs 5 lakh. We would like to increase our portfolio size on the basis of that," he said.
Currently, Bandhan has over 13,000 employees and is looking to add 3000 more. Ghosh claimed the institution has received nearly 35,000 job applications many of which are from bankers in public, private and foreign banks. So, is he going to match the salaries these experienced bankers are getting?
"They are happy to work with Bandhan. They feel I am part of an MFI becoming a bank. This is one inspiration. Secondly, this is a different type of banking in the country," he said.
Bandhan has support coming in from IFC and SIDBI, but it needs to strengthen its balance sheet and also needs more capital. How will it raise capital going forward or attract new investors?
Ghosh said their current book size is at Rs 6,500 crore. When they transform into a bank, it would increase to Rs 7,500-8,000 crore. "We are now maintaining capital adequacy ratio of 21 percent. IFC infused capital Rs 160 crore into the MFI. As per RBI norms, I need Rs 500 crore to form a bank. So now I have Rs 1,250 crore net worth and by the closing of the year, it will come to Rs 1,500 crore and Rs 160 crore infusion is there, so that is Rs 1,660 crore, which is good enough capital to start a bank where minimum requirement is Rs 500 crore. So right now, I am not yet thinking of any capital infusion," he said.
So will Bandhan have to raise capital every year? "Not every year. Within 3 years from the opening of the bank, we should go for listing. First two years, we need to set up a bank and run all activities. Third year little bit growth should come, so that after three years, we should go for listing," Ghosh said.
The banking sector has seen a growth of 12 percent in the last quarter and the yearly growth may be around 15 percent, whereas for Bandhan it was 40 percent growth last year, Ghosh said.
"I cannot expect 40 percent growth in a bank. Beginning there is a lot of work to transform the bank and build up the capacity of the staff, set up the bank and streamline the product. Forty percent growth is unlikely to continue. So that is not expected. Whatever bank growth is there, 15 percent, I hope my growth is more than that," he added.
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