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600 branches, 250 ATMs, 34% capital adequacy: Here's how Bandhan Bank will make a splash

Mumbai: Micro lender Bandhan yesterday said it has received licence from RBI to start a full-fledged bank and will debut in August with up to 600 branches focusing on retail and small businesses segments.

Bandhan Financial Services director Chandra Shekhar Ghosh. Image courtesy Bandhan website

Bandhan Financial Services director Chandra Shekhar Ghosh. Image courtesy Bandhan website

"We have received the final bank licence from RBI today and will be starting operations with 500-600 branches on August 23," Bandhan Financial Services' director Chandra Shekhar Ghosh told reporters in Mumbai.

The company, which along with infra lender IDFC was given in-principle nod last year to enter universal banking, has named it as "Bandhan Bank" and will focus on its strengths in retail and micro enterprises in unbanked or under-banked rural areas for the bank, he said.

Its entire current operations, including a network of 2,200 offices across 22 states, over 17,000 employees, 66 lakh customers and a loan book of Rs 10,000 crore, will be part of the bank from day one, he said.

The 500-600 branches will be freshly set-up and the 2,200 offices will act as door step service centres, he said, adding that 200 of the branches will be in metro and urban areas, and the rest will be in semi-urban and rural areas.

The eastern region, which accounts for 70 per cent of the MFI's business, will also occupy a big chunk for the bank, Ghosh said, adding that this is also essential as the banking penetration is lowest in such pockets.

The bank will have an ATM network of 250 on day one, and also associates, who have been serving the rural population in its current avatar as a MFI.

The bank is now calling these 12,000 associates as "HTMs" who will operate from handheld devices and undertake transactions like deposit and withdrawals done at ATMs.

Apart from the current states, Bandhan Bank will add four states in south India and Arunachal Pradesh to its network, Ghosh said.

There will be an infusion of Rs 500 crore by shareholders, which include IFC, SIDBI and Singaporean sovereign wealth fund GIC in the run-up to starting operations and the capital adequacy will be at 34 percent.

The bank will not need any infusion in the first three years of operations, he said, adding that it will launch an initial public offer by 2018.

Ghosh said the bank will start lending from the first day onward but hinted that the ticket sizes will be smaller.

Once it transforms into a bank, it will lower its lending rate from the current 22.4 per cent, Ghosh said, adding that the pace of lowering the rate will be determinant on the pace of deposit accretion by the bank.

Ghosh conceded that there will be a jump in transaction costs as compared to the much leaner operations as a MFI, but added the access to public deposits will help as till now, it had to depend on banks' funding lines on the liabilities side.

On the product mix, he said Bandhan Bank will be doing housing loans of up to Rs 10 lakh and auto loans as there is some demand for vehicles in rural areas.

However, it will stay away from corporate lending for at least three years. Bandhan Bank will also prefer the much reliable retail deposits, rather than the bulk deposits.

"At the moment, we want to be financially viable," Ghosh said, pointing out to the woes being faced by lenders because of large ticket lending and added that Bandhan's NPAs are 0.10 percent.

The bank has put in place a management team of 20 people, Ghosh said, without divulging the hierarchy structure. He added that all the top-level appointments will have to be cleared by RBI.

It has hired 850 people from other lenders, including private sector and state-run ones, for the bank, he said.

On competition, especially from the upcoming payments banks and small finance banks, Ghosh said it is always good for the system and pointed out to its network as a strength.

For customers, nothing changes about their relationship with Bandhan, he further said, adding that they will now have the ability to deposit and remit money as well.

Bandhan Bank will have debit cards from day one, and has no immediate plans of a credit card offering, he said, adding that a digital platform will also be available.

It will continue to sell insurance policies and investments under the new pension scheme, Ghosh said, adding that it is in talks with more insurance companies apart from Bajaj Allianz and LIC, to sell their products.

By the time it launches operations, it intends to grow the loan book to Rs 11,000 crore, Ghosh said, adding that it is being advised by Deloitte, FIS for software solutions and AON Hewitt for human resource management.

Bandhan, which started from a town near Kolkata in 2006, had posted a post tax net of Rs 428 crore for FY15.

IDFC and Bandhan were selected from a list of over two dozens applicants, which included big names like Reliance Capital, Aditya Birla Group and Tata Sons, for the universal licence. The last time RBI Had issued licences was in 2003.

However, RBI has said that it now wants to give new licences "on tap" rather than the previous experience of once in a decade licensing.

RBI has repeatedly said the sole objective of new banks is to deepen the reach of banking in the country, where nearly half of the citizens do not have an account.


Updated Date: Jun 18, 2015 08:40 AM

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