Interestingly, Ghosh’s bus ride home after getting the Sibdi loan was not his last. To save money, he would travel long distances by public transport until about a decade back, when Bandhan was already an established organisation, he says.
Ghosh’s frugality is evident in all aspects of the bank. Of its 4,000 outlets, about 3,014 are very low-cost doorstep service centres (DSCs). From the outset, Ghosh has made it a point to save every penny.
“Our DSCs are typically very low-cost structures. Moreover, our women borrowers won’t be comfortable if we convert our DSCs into plush offices. It is a client-centric set-up. Typically, a DSC is a one-room office, with one table, one plastic chair with arms for the branch officer, eight armless plastic chairs for credit officers, ten stools for customers, one wooden rack, one tubelight and one fan. Earlier, it cost Rs 64,000 to set up this infrastructure, but now with computers the price has gone up,” he says.
Bandhan boasts of excellent financials that are the envy of every banker: one of the lowest non-performing assets in the industry, a net interest margin of over 8 per cent, and strong credit and deposit growth.
However, despite excelling quantitatively, Ghosh is uncomfortable when confronted with questions on numbers: “I feel uncomfortable when people ask me about growth and profit. I never bother how my stock price moves. My success should be measured on the basis of how many lives we changed.”
While Ghosh may be averse to talking about numbers, the stock markets have been keeping a close tab on Bandhan. The bank commenced operations in August 2015 and was listed on the exchanges in March 2018. Its share price jumped 30 per cent on debut. Within a year and a half of the IPO, the bank’s share price is up 50 per cent.
Some of the inherent strengths of Bandhan come from its high dependence on microfinance operations. Margins in the business are typically high, and micro financiers justify this on grounds of high cost of operations. Microfinance constituted 85 per cent of Bandhan’s portfolio prior to its acquisition of Gruh Finance
in October 2019
from Housing Development Finance
Corporation. However, what is unique about Bandhan Bank
is that high margins are coupled with a frugal cost structure, economies of scale and access to low-cost deposits that comes with being a bank.
Bandhan Bank’s cost of income ratio is one of the best in the industry — about 0.32 in FY19. For most of its peer banks with substantial microfinance businesses, the ratio is between 0.35 and 0.40. The sheer size of Bandhan Bank’s operations, a customer base of over 18 million connected through almost 4,000 banking outlets, gives it an added advantage.
Yet, Bandhan Bank
is not just about numbers. Small loans would not have helped make the lender a dominant player without interpersonal relationships, a key value at Bandhan Bank, and something at which Ghosh has excelled.
is now working on an information technology (IT) upgrade, but without compromising its high-touch model.
“Today the huge customer base of Bandhan Bank cannot be managed without IT. However, on the other hand, if the high-touch model is abolished and replaced with IT, then it will be a great risk for the bank,” says Ghosh.
The going has not always been smooth for Bandhan. In September 2018, RBI penalised the bank for non-compliance with the promoters’ holding norm, and Ghosh went through the most difficult of times. The RBI froze his salary at the existing level and directed Bandhan to take the central bank’s permission for every branch opening.
“If you are prepared to handle stress, you won’t be bothered. Whenever I face a crisis situation, I first think with a cool mind, and try not take an abrupt decision,” he says.
Bandhan Bank’s operations were not impacted much by the RBI curbs, since it had opened a large number of branches in the first three years of operations. This enabled it, despite the restrictions, to reach its target of 1,000 branches by March 2019.
Acquisition of Gruh Finance
reduced the promoters’ stake to 61 per cent, from over 80 per cent earlier. Ghosh needs to bring it down to 40 per cent to meet the RBI norm, which remains his biggest immediate challenge.
While some investors have rubbished the Gruh Finance acquisition on grounds of overvaluation, it was a masterstroke by Ghosh. Gruh would be instrumental in Bandhan diversifying its portfolio, both geographically and asset-wise. Also, Gruh’s high asset quality and HDFC’s expertise in affordable housing gave Bandhan Bank an edge in the industry. Its microfinance portfolio now stands reduced to about 61 per cent. Bandhan now aims to draw 50 per cent of its portfolio from the non-microfinance business — particularly affordable housing — in the next three to five years, says Ghosh.
While the past decade has been particularly good for Bandhan, the next decade could unleash new challenges. Ghosh admits that so far the biggest challenge the sector faces relates to finding good talent in the banking sector, especially in the eastern region.
There are sectoral challenges, too. It has been almost a decade since government regulations in Andhra Pradesh curbed the microfinance sector in the state, but the leaders of the sector suffered, with many shutting shop. The eastern region had then been spared the crisis, and it helped Bandhan emerge as the largest microfinance institution in the country.
Only recently, in Assam, an organisation named Jagrata Mahila Suraksha Samaj has been leading protests against microfinance institutions, blaming them for suicides and coercive recovery practices. The spate of debt waivers by states adds to the woes of the microfinance sector.
So far, Ghosh has shown remarkable banking acumen, taking Bandhan to new heights. However, he is already 59, and the bank’s future will depend on how well the next line of leadership is groomed — a fact that Ghosh has taken cognizance of. “We are already grooming a set of people for this purpose,” he says.
Without doubt, however, Ghosh’s combination of intelligence and humility has transformed a small non-government organisation into a big private bank.