Competition in the banking sector is set to intensify with Bandhan Financial Services getting the final approval to become a full fledged bank from the Reserve Bank of India. The new Bandhan Bank will be headquartered in Kolkata and will launch operations in August.
Bandhan, the country’s largest micro-finance institution, and IDFC were the only two entities that bagged the central bank’s in-principle approval to set up banks from among 26 applicants that included Aditya Birla Nuvo, Bajaj Finserv, and Reliance Capital. IDFC is also expected to get the final approval shortly. It has already appointed Ajay Mahajan to head the commercial and wholesale banking unit.
Currently, three public sector banks – Allahabad Bank, UCO Bank and United Bank of India – have their headquarters in Kolkata. Bandhan will become the fourth.
Chandra Shekhar Ghosh, Chairman & Managing Director, Bandhan Bank, has already chalked out plans to ramp up its existing micro-finance business. The bank is scheduled to be launched on August 23.
Ghosh wants to grow customer base from 6.4 million to 10 million and the loan book from ₹9,500 crore to ₹11,000 crore. The bank will grow its presence to 27 States from 22 States now.
“All existing business, existing clients will be transferred to the bank. Our core focus will be retail, rural and MSMEs (micro, small and medium enterprises). We have 29 million SMEs in the country and only 5 per cent are covered by existing banks,” said Ghosh.
The Bandhan chief explained that he wants to establish a bank which is financially viable and hence will not take risks initially.
“Our plan is to open around 500-600 branches across India with special focus on the eastern and north-eastern parts of the country. We will be a bank for all, but our primary objective will be to serve the unbanked,” said Ghosh.
After receiving the RBI’s in-principle licence, Bandhan appointed agencies including Deloitte Touche Tohmatsu India Pvt Ltd as consultant for the banking project and FIS as the information technology partner. It had also roped in Aon Hewitt to design the human resources and compensation policy for employees.
To beef up its capital base, Bandhan recently raised ₹1,020 crore equity from International Finance Corporation, Singapore’s sovereign wealth fund GIC, and state-run Small Industries Development Bank of India.
Following the equity infusion, Bandhan’s net worth has gone up to ₹2,700 crore, well above the RBI’s stipulation of a minimum capital base of ₹500 crore for new banks.