The Reserve Bank of India today granted "in-principle" approval for banking licences to infrastructure financing firm IDFC and Bandhan from among 25 applicants, including corporate heavyweights ADAG Group, Aditya Birla Group and Bajaj Group.
Bandhan was the only microfinance institution that applied for a banking licence.
Set up in 2001 by Chandra Shekhar Ghosh, Kolkata-based Bandhan began with a focus on working with "socially disadvantaged and economically exploited women," according to its website.
With 2,016 branches across 22 states and Union territories, Bandhan had over 52.33 lakh borrowers as of February. It disbursed Rs 963 crore of loans in February and has total loans outstanding of Rs 5,704 crore.
The RBI said it assessed the quantitative and qualitative aspects of the applicants, including their financial statements, 10-year track record of running businesses, proposed business model for the bank and demonstrated capabilities for running a bank, plan for expanding inclusion, and culture of compliance and integrity.
Bandhan said the award of the banking licence was a recognition of the microfinance sector and their hard work to reach unbanked areas and provide financial services.
"We will be able to offer full-fledged banking services to the poor people," Bandhan Chairman and Managing Director Ghosh said.
Microfinance institutions had come under government scrutiny in 2010 after allegations that their strong-arm recovery tactics had led to a spate of suicides by borrowers.
The Andhra Pradesh Micro Finance Institutions (Regulation of Money lending) Act, 2010, was passed to ensure that the state government had oversight on the sector. The Act massively hit the microfinance business in Andhra Pradesh, which accounted for almost 30 per cent of the total of Rs 30,000 crore in the country.
In July 2012, the RBI said that Andhra Pradesh Act has no jurisdiction over microfinance institutions registered as non-banking financial companies (NBFC) but only on non-NBFC MFIs. Subsequently, the Micro Financial Sector Development and Regulation Bill, 2011, was cleared and micro-lenders were brought under the ambit of the central bank.
Bandhan has loan schemes such as Samriddhi for the MSME sector and Sushiksha for education, among others. It also runs the Bandhan School of Development Management.