To bond with the poor

The first new bank in a decade, Bandhan Bank promises to remain committed to its core cause of uplifting the lives of poor women and retain its business philosophy of functioning as a “bank with a heart”.

The headquarters of Bandhan Bank in Kolkata.

In a recent interview to a television channel, Chandra Shekhar Ghosh, the founder of Bandhan, the microfinance institution (MFI) that has become a full-fledged bank, said that the day he quit his low-paying job in a non-governmental organisation (NGO) to start it, his wife cried all night. With an aging mother-in-law and a two-year-old child to care for, Ghosh’s wife could not really be blamed for her apprehension. The next morning his brother-in-law called to dissuade him from his “insane” plan. But Ghosh was not to be dissuaded. Fourteen years later, on August 23, Bandhan Bank, the newest bank in the country and the first to be inaugurated in eastern India in 72 years, commenced operations with 501 branches, 2,022 service centres, 50 automated teller machines (ATMs) and 19,500 permanent employees spread across 24 States. It has 1.43 crore accounts and a loan book of around Rs.10,500 crore. The last bank to start operations in eastern India was UCO Bank, which was established in 1943.

Not only is Bandhan (which means bonding) the first bank to come into being in the country after more than a decade, but it created history in June when it became the first MFI to get approval from the Reserve Bank of India (RBI) to set up a universal bank. The Kolkata-based organisation, headed by Ghosh, its Chief Executive Officer (CEO), beat a formidable line-up of contenders for the licence, including mighty conglomerates such as the Reliance group of Anil Ambani, the Bajaj group and the Aditya Birla group.

Subsequently, the Reliance and Aditya Birla groups got an “in principle” nod to set up “payments” banks, but not a “universal” bank.

Industry sources said Bandhan’s deep penetration into rural India, particularly in West Bengal, in conducting its microfinance business, tipped the scales in its favour. The entire customer base of the institution comprised women from the poorer strata of society, mostly from rural areas. At the time it transformed itself into a bank, it had around 6.7 million women borrowers from 3,44,346 self-help groups, spread over 35,000 villages across the country. All of Bandhan’s clients have been transferred to Bandhan Bank as account holders. The bank has promised to locate more than 71 per cent of its branches in rural India, and at least 35 per cent of them in unbanked rural regions. At a function on August 23 in Kolkata, inaugurated by Union Finance Minister Arun Jaitley, Ghosh made it a point to separately address in Bengali women customers who had come from rural parts. “To you my mothers and sisters, I offer my thanks for helping bring my organisation to this point…. I promise you, this bank will continue to serve you,” he said. He made it clear that the bank would not deviate from its goal of providing loans to small and medium enterprises. “Our focus will be the micro, small and medium enterprises, which are the engines of growth of the economy. To start with, we will stay away from large corporate loans,” said Ghosh.

Jaitley called Ghosh’s achievement a “landmark initiative in the service of the country and the State”. Referring to Bandhan’s commitment to small and medium entrepreneurs, he said: “It is these entrepreneurs, many of them in the unorganised sector, who form the backbone of Indian economy.”

In the establishment of Bandhan Bank, Jaitley also saw the revival of Bengali entrepreneurship. “The most important thing is the birth of a Bangla entrepreneur. It is of utmost importance for the revival and growth of the fundamentals of West Bengal,” he said.

Bandhan Bank has two divisions —micro banking and general banking. It has commenced operations with a capital of Rs.2,570 crore, which it claims will soon increase to Rs.3,052 crore. According to the RBI’s licensing norms, a new bank must have a minimum capital of Rs.500 crore.

By the end of the 2016 fiscal year, Bandhan Bank plans to increase the number of its branches to 632 from 501 and the number of ATMs to 250 from 50, along with spreading its presence to 27 States from 24 currently.

International Finance Corporation, GIC of Singapore and Small Industries Development Bank of India (SIDBI) are stakeholders in the bank.

MFI to bank

For both Bandhan and Ghosh, it has been a unique journey so far. Born into an impoverished family in Tripura, Ghosh completed his postgraduate degree in statistics from Dhaka University and began to work with the Bangladesh Rural Advancement Committee (BRAC), a highly acclaimed Bangladesh-based NGO. Subsequently, he returned to India and worked in several NGOs, the last of them being the Village Welfare Society.

During his interactions with people in rural society, Ghosh realised that local vendors were paying interest rates as high as 700 per cent to moneylenders.

The idea of forming Bandhan began taking shape in his mind then. In 2000, at the age of 40, he quit his job and, with a fund of Rs. 2 lakh—which he had to borrow from friends and relatives—started Bandhan with just three employees.

“When I started Bandhan in 2001, it was to provide poor people with small loans. I did not dream that it would become a bank one day. I realised that poor people are fully dependent on moneylenders, and, as they could not access credit from financial institutions, were forced to pay exorbitant rates,” Ghosh said. Bandhan began operations from Bagnan in West Bengal as a microfinance firm catering exclusively to women.

However, the corpus of Rs. 2 lakh was finished in just three months, and that was when Ghosh’s real trials began. He started to knock on the doors of banks, but to no avail. They were not willing to take a chance on someone who came neither with a reputation nor with influential backing. The situation took a turn for the better when SIDBI came forward with a loan of Rs.20 lakh as an experiment. Using SIDBI as an example, and a repayment record of 100 per cent from the borrowers, Ghosh finally managed to convince other banks to extend loans as well. These included State Bank of India and ICICI Bank, which could meet their own objective of extending credit to the primary sector, notably the rural poor.

Being a non-banking financial company at that time, Bandhan could not collect funds directly from people, and had to go in for institutional borrowings. As a result, the rate of interest for its customers was around 22.40 per cent. As a bank, it will now be able to accept deposits from the general public, which in turn will bring down the overall cost of its borrowings.

“That does not mean the interest rate on small loans will come down drastically overnight. It will be a gradual process. I promise I will keep passing on the benefits (of low-cost borrowings),” Ghosh said after Bandhan became a bank. Initially, MFI loans were extended for entrepreneurial purposes only, but as the organisation began to expand, the number of categories also increased and it started extending educational loans, health loans, and so on.

After receiving the SIDBI loan, Bandhan’s borrowers went up from 300 to 1,100 in a matter of just a few months.

There was no looking back for Ghosh, and in the next 10 years, Bandhan emerged as one of the largest and most respected MFIs in the country.

However, regardless of how big it became, it did not forget its commitment to the cause of uplifting the lives of poor women.

Ghosh made it a point to stress that even after becoming a bank, Bandhan’s “business philosophy” would not change.

“We are here to make a difference in the lives of millions of people, and with that objective we are starting this bank—a bank with a heart,” he said.