Rural Financial Inclusion: Small Finance Banks Could Pick up Where Public Sector Banks Left Off in India

Wednesday, August 30, 2017

A fundamental change is taking place in Indian banking which has the potential to become as dramatic as bank nationalisation. The process is understood, but its likely impact is not. Hence the issue is missing from headlines.

Chandra Shekhar Ghosh, founder and chief of Bandhan Bank, the only microfinance institution to become a universal bank, hits the nail on the head when he says, “By 2030 microfinance institutions (MFIs), small finance banks and banks like Bandhan (coming up from the bottom) will dominate rural banking and they will remain absolutely viable.”

Ghosh is not the only financial sector leader to think along these lines, but he is particularly qualified to say what he has because of the way in which Bandhan Bank has fared in the first two years of its operations as a universal bank. So, first, a look at what Bandhan Bank has achieved and then outlining how this feeds into a bigger picture.

In public displays, Bandhan Bank is celebrating the completion of its second year by claiming that it is the fastest growing bank in India. But a far more important achievement lies in what it has done in one half of its business – getting deposits. When it started off in August 2015, it took over the entire microfinance loan portfolio of its earlier avatar. So it had a readymade loan book to begin with.

Photo courtesy of Accion.

Source: The Wire (link opens in a new window)

lending, microfinance