Tough Challenges Await India’s Chandrashekhar Ghosh’s Bandhan in Its Commercial Bank Avtaar
Friday, August 28, 2015
On Sunday, Kolkata-based microfinance institution (MFI), Bandhan Financial Services formally converted itself into a full service commercial bank, thus becoming the latest private sector bank in the country. Bandhan is one of the two entities, which were given full-service banking licences by the Reserve Bank of India (RBI) in April, 2014, from a list of 25 aspirants that included big business houses. The other is IDFC.
The brand new Bandhan bank is hitting the ground running with an initial loan book of Rs 10,500 crore, 501 branches, over 10 million customers and a net worth of Rs 2,570 crore. Going by the size of the loan book, on the first day of its operations itself, Bandhan bank will overtake some of the existing private sector banks such as DCB, Catholic Syrian and Dhanlaxmi.
As Firstpost noted in an earlier article, the RBI couldn’t have chosen a better candidate than Bandhan while awarding licences to the third set of private banks in India with the primary objective of promotion of financial inclusion. In the previous two rounds, when the RBI gave permits the major aim was to introduce competition in the banking sector, dominated by public-sector banks (PSBs).
There aren’t too many like Bandhan’s founder Chandrashekhar Ghosh, who understands the true sense of financial inclusion in a country, where half of the adult population is still unbanked. Ghosh, who have started as a filed worker in the microfinance business, has tremendous experience in finding a business model in the low-income customer segment. For most existing private sector banks, financial inclusion has remained an activity forced by regulation than commitment or a viable business proposition.
In a presser organised in mid-June to announce the receipt of final bank licence approval from the RBI, Ghosh said his commitment to the poor would remain even after Bandhan becomes a bank. The major focus of the Bandhan Bank would continue to be on small borrowers (retail and rural banking), while lending to large corporations would not be a priority. Over 71 percent of the branches will be in rural India and at least 35 percent in the unbanked rural pockets. The Kolkata-headquartered bank will have two divisions — micro banking and general banking. Bandhan also plans to transfer its existing microfinance businesses and staff to the new bank.