Priority sector lending, which is viewed by most banks as a high-risk regulatory obligation, will be the focus area for the upcoming Bandhan Bank. The RBI’s priority sector lending mandate includes agriculture, small-scale industries, micro-credit and education.
“Our entire loan portfolio of ₹6,200 crore is directed at the priority sector. We have 55 lakh borrowers, all women, living in remote rural areas. And, the majority of the customers are yet to enjoy banking services,” Chandra Shekhar Ghosh, Chairman and Managing Director of Bandhan, told Business Line .
With a (loan) recovery rate of 99.5 per cent, Bandhan currently sells priority-sector loans to commercial banks.
But as a microfinance institution, Bandhan enjoyed greater flexibility in operations. Will the rigours of banking regulation be an impediment in extending loans to small unorganised enterprises or low net-worth individuals? Ghosh doesn’t think so. The company currently borrows money from commercial banks at 12.5-13 per cent and lends it at nearly 23 per cent.
Access to cheaper bank deposits will help Bandhan lower the lending rate and enhance MFI operations.
Focus on East, North-East The opportunities, he claims, are particularly high as 70 per cent of his customers are in the East and North-Eastern region, considered a “deposit hub”. “We have already taken credit facilities to the doorstep of the people in these States. We will now use our 13,000-employee network to also collect deposits,” he says.
The challenge lies in training the workforce in banking operations, which Ghosh is confident of doing. “We have a very able workforce. We will retain everyone and meet the additional requirement for core banking operations through fresh recruitment,” he says.
The son of a sweet-meat shop owner, Ghosh started his career working for NGOs, including BRAC in Bangladesh, for a mere ₹5,000 a month till he set up Bandhan in 2001, initially as an NGO and then as an MFI (2005).
“I wanted to develop a need-based viable business model, not one that is dependent on foreign aid,” he said in an obivious reference to BRAC’s massive operations in Bangladesh, which range from banking to retailing.