Beyond Microfinance

Five years since it started operations as a commercial bank, Bandhan Bank is all set to shed its microfinance-lender tag. It is not just focussing on geographical diversification, but also expanding its loan book across housing (affordable housing finance firm Gruh Finance merged with Bandhan in October 2019) and high-margin personal, gold and SME loans. It also plans to offer insurance and mutual fund services, albeit through a holding company.

Away from the din of Mumbai, where most financial institutions are based, Bandhan Bank MD and CEO Chandra Shekhar Ghosh operates out of Kolkata. Despite diversification, he wants to stick to the core, of serving rural India.

"Earlier nobody trusted us with their deposits. But, within five years, Rs 71,000-crore deposits have come to the bank from 2.5-crore customers. The loan book is at Rs 80,000 crore-plus. As we grow bigger, we are eying a larger non-micro credit loan profile. The bank started its journey with Rs 15,000 crore micro credit out of the total advances of Rs 18,000 crore. Now, 40 per cent of advances are non-micro credit (around Rs 32,000 crore). Out of this, Rs 18,000 crore is from Gruh merger and the balance is non-Gruh portfolio," says Ghosh. Over the next five years, the bank is aiming for a business mix of 30 per cent each in micro credit, housing and MSME loans, and about 10 per cent in other retail loans.

Bandhan has built a base of low-cost CASA (Current Account Savings Account) of 42.9 per cent as on December 2020. Cost of funds has also reduced to 6 per cent as on December 2020, compared to 7.7 per cent in FY17. Deposits of 20 largest depositors as a percentage of total depositors is on the higher side (15.71 per cent) for the bank, but advances to 20 largest borrowers as a percentage of total advances at 4.59 per cent is the lowest among peers.

Collections And Provisions

Microfinance institutions are prone to disruptions. The bank was already reeling under the effects of Covid-19, when the Assam government passed the Micro Finance Institutions (Regulation of Money Lending) Bill, 2020, making it difficult for MFIs and banks to recover loans.

In its January 2021 report, Emkay Global Financial Services had put Bandhan Bank's proforma GNPA (gross non-performing asset) ratio at 7.1 per cent, which after adjusting for part payments by customers, comes around 3.5 per cent.

"Our proforma NPAs are of two kinds - fully paid and partially paid. Our micro-credit collections are back to 92 per cent - 81 per cent of it is in full installments and the balance is partially paid. If we do the loan restructuring, then we don't have high NPAs," says Ghosh. "I am not worried about NPAs because it is not that borrowers do not want to pay back. Their businesses are yet to recover from Covid. We need to give them time."

"The bank has made additional Covid-related contingent provisions of Rs 1,000 crore in Q3, taking the cumulative provisions to Rs 2,740 crore (3.4 per cent of overall asset under management or AUM, and 3.9 per cent including additional provisions on emerging entrepreneurs business portfolio)," according to the Emkay report.

Building A Credit Culture

Ghosh says India needs to maintain a credit culture. "You cannot tell us that we are not lending when at the same time you also ask us why we are asking them to pay back. Not only lenders, but the government, regulators and political leaders must understand about building a credit culture, otherwise you will solve one side of the problem, but the other side will be badly hit. We need to find ways to balance both."

"When a customer takes a loan, we need to educate him/her about paying back. We should focus on building capacity of customers and maintaining discipline," he adds.

Coming Up

Expanding its loan book beyond micro credit tops the list, but new product pipelines such as insurance and mutual funds and geographical diversification also hold key.

"Under a holding company, we are eligible to run other financial services. So, we have a visionary plan, to provide insurance and wealth services to customers, because financial inclusion means having a bank account for savings, loan account for credit access and insurance services. Rural and semi-urban India is not getting insurance. As a group, we would like to start insurance services, which could reach them," says Ghosh. The bank, which is most active in eastern India, is aggressive on geographical expansion. "In the last one-two years, 90 per cent branches have come up in regions other than the East," adds Ghosh.

Bandhan has 4,559 outlets across 34 states and Union Territories out of the total 37. This includes 1,018 bank branches, 3,346 banking units and 195 home loan centres. The bank had started with 2,523 banking outlets in 2015.

Digital adoption will see more focus. "Customers need not come to branches to open bank accounts. We do video KYC. We also provide doorstep services such as withdrawal and collection facilities to select customers," says Ghosh.

The competition is ripe. Not only big private banks, but also new-age Fintechs and Small Finance Banks are betting big on the microfinance business. At the same time, Bandhan Bank has to build its niche in other verticals as well. So, does it concern Ghosh? "My competitors are my friends. In any case, India is a vast country. If we focus on new-to-credit customers, there is ample opportunity for growth."

@apri_sharma