India’s largest microfinance company, Bandhan Financial Services, on Wednesday got the final nod from the Reserve Bank of India to set up a bank. The bank will start its operations on August 23. Speaking to the media, Chandra Shekhar Ghosh, chairman & managing director, said Bandhan will remained focused on the unbanked rural population and micro and small enterprises even after it turns into a bank.
What problems do you expect to face during transition into a bank from a microfinance company?
We don’t plan to change anything in our existing system — the collection mechanism or other methodologies. We would like to operate in the same manner as we have been doing. Only the banking segment will be new so that the existing microfinance customers do not face any difficulty.
In five south Indian states and 107 districts, banking penetration is greater than the country average. So, there is no immediate need for a new bank to go to those states. We would like to focus on the unbanked areas. Rural areas will be our focus: All over India, there are 25 crore households and, out of them, 17 crore are in rural areas and 9 crore of these are unbanked. Therefore, we believe that, in rural India, much more banking penetration is required, and we will focus on them, going ahead.
What is your current lowest lending rate and what will be your base rate after you become a bank?
Our lending rate is 22.4% on the basis of borrowing funds from banks, the rate for which is around 12%. On becoming a bank, deposits would not come in immediately and, thus, our cost of funds will not fall. However, as we turn into a bank, our operational costs will increase. So, in that sense, we have not decided on the base rate and it will be arrived upon by our asset-liability committee (Alco). This will be based on our cost of borrowing on becoming a bank after we are able to accept deposits. Our policy is that whenever our cost of funds come down, we will pass on the benefits to customers. We are currently operating at a 10-basis-points bad loan level and would like to focus on retail loans and avoid big-ticket loans.
With small and payment banks about to be licensed, what kind of competition do you expect?
In the last 12-15 years, I have faced a lot of competition in the microfinance business and, therefore, believe that competition also gives you some opportunities.
One of the opportunities was educating customers through which they will be able to choose which service is best for them. Competition has also given us the opportunity to improve the internal efficiency of the staff. I, therefore, see no problem even after new players come into the market. We already have the network in place and will also get the first-mover advantage. Bandhan has appointed 850 experienced banking professionals at senior- and middle- level positions to run its operations, in addition to the 17,000 employees it already has on its payroll.
You plan to open 500-600 bank branches. How will the branches being categorised?
There will be four kinds of branches — metro, urban, semi-urban and rural — and the rural and semi-urban branches will have a different setup from the metro branches. Out of 600 branches, 200 will be in urban areas and the rest in semi-urban and rural areas.