We will prove that serving the poor is sustainable and cost effective for a bank: Bandhan chief CS Ghosh

Even as it is set to transform itself from a microfinance institution to a bank, Bandhan​ promises to maintain the poor as their target for loans and advances. The institution that is present across 22 states and has a 13 million customer base, received the in-principle approval for the banking license in April this year.

When I first interviewed the chairman and managing director CS Ghosh in 2010, he was happy in the world of microfinance. He was convinced he did not want to get listed and wanted to focus only on the group that did not get access to funds otherwise. A lot has changed since then. He had told me then, that he was more open to equity coming in from individual private investors and did not want to enter the market even as other players like SKS Microfinance and its peers were either getting listed or submitting their draft prospectus.

In 2011, International Finance Corporation entered the foray with funds for Bandhan and now holds 10.9% share in the company. IFC also lent Rs 160 crore to Bandhan recently, a fund given for 7 years at a rate of 14.5% annual cost.

On the sidelines of a banking conference organised by FICCI, Ghosh told dna that he would launch his new bank before next Durga Puja. He said more than 500 branches would be launched on the same day so that their 13 million captive customer base gets access to banking services from the first day. He said he aims to prove that a bank serving those untouched by the banking industry otherwise can sustain itself and be profitable as well.

Here are excerpts from the interview:

You have come a long way from being a microfinance institution to a bank. What is your strategy going ahead? Is the target customer base going to change now?

Our existing captive customers are poor economically backward people with less than Rs 50,000 income per year. We are now trying to target those with income above Rs 50,000 per year, the middle class as well as the rich. But this is only from a deposit point of view, because we need to expand our deposit base. The target group for the advances or the loans remain the same, those who otherwise do not have access to banking services. We would also like to tap small businesses, the SMEs for loans but not the big corporate.

There are lot of concerns regarding rising bad loans for banks. As a bank, you are clear that you do not want to tap the big corporate for loans, and it is not like big corporates have always repaid the loans on time. But now that you are going to expand as a universal bank, focussing only on the economically backward population, do bad loans worry you?

I believe if the staff of the bank rightly assesses the cash flow of the customer and after the disbursement of the money, if they physically visit the customers and check it, bad loans will not be an issue. The physical touch is more important to reduce NPA (non performing assets) and not so much IT. For the banking sector, the beginning should be physical touch and then can be brought to IT. Without a direct physical touch with the customer and frequent visits, NPA will become worrisome for the country.

You will target the SMEs for big loans and not big corporate. It was earlier raised in the conference that SMEs have high mortality in the sense, around 50% of them perish in less than 3 years of establishment. How will you address this issue while disbursing money to them?

If you again look at the bottom of the graph that we are working with, they are not bankable. They are refused by banks. But we have proved they are not high risk but high potential. Similarly for SMEs, we will prove they are not high risk but high potential - just give it some time.

Any human resource challenges you are facing while recruiting for your new bank?

Only 26% people in our country get fixed monthly salaries in our country. The rest of them earn by small businesses or erratic jobs. Unemployment is one of the major problems in our country. Getting people is not a problem, though it could be an issue about how to build up the capacity of these people. How to train people so that people get the service. It is an idea that even microfinance institutions (MFI) have to be run with an MBA. But we have trained people in a way that they have run the MFI successfully without formal management degrees. Now they will be running the bank. For specific requirements, like say the compliance head or the risk management head, we are recruiting people from the banking industry.

Where do you see Bandhan in five years’ time?

We would like to see Bandhan as a commercially viable bank, catering mainly to the people who are untouched otherwise by the banking industry. We will prove again that even as a bank, it is possible to serve the people in a cost effective manner, in an effective manner and still be sustainable.