Bandhan gets final RBI nod, to start bank on August 23

After a gap of more than a decade, a new private sector lender will start operations from August 23. The Kolkata-based micro financier, Bandhan Financial Services, which received the final approval from the Reserve Bank of India on Wednesday morning.

ALSO READ: 7 things to know about Bandhan

The bank will not give loans to the corporate sector – at least for the time being – and focus on its strength, that is serving the bottom of the pyramid category. The lender will start with 600 branches, of which 200 will be in metro and urban areas and the remaining in semi-urban and rural areas.

“While RBI norms require us to open 25% of the branches in the unbanked areas, we will open 40% of the branches in those areas,” Chandra Shekhar Ghosh, Founder & Chairman of Bandhan, told Business Standard. The bank will have 250 automated teller machines to start with.

The bank will be profitable from day one as the present microfinance entity is making profit. It posted Rs 428 crore profit in 2014-15.

ALSO READ: Bandhan plans to open 20 branches

Ghosh admitted that the initial period would be challenging as the newly formed bank will not have low cost deposits – a key component of the liabilities of a bank which is crucial for profitability.

The lender expects it will take two years to build up a current and savings account deposit base (casa) that will in turn help it to reduce lending rates.

The micro financier’s cost of the deposit, which raises funds from banks, is 12% and it charges 22.4% for giving loans. However, bad loans are just 10 bps of its advances.

Bandhan Bank will start with Rs 11,000 crore book and a capital of Rs 3,200 crore – far above the regulatory requirement of Rs 500 crore.

Bandhan recently completed raising Rs 1,020 crore equity from International Finance Corporation, Singapore’s sovereign wealth fund GIC, and the state-run Small Industries Development Bank of India.

It hopes to increase its customer base to 10 million when it starts the banking operations from 6.6 million now. “We aim to double our customer base in 2 years,” Ghosh said. “Our target is to increase the number of customers and not loan book.”


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