Bandhan Bank

BJP Names Candidates for Third, Fourth Phases of Bengal Assembly Polls

The BJP has fielded a Union minister, three sitting MPs, a noted economist and several film personalities for the high-stakes battle in the state.

New Delhi/Kolkata: The Bharatiya Janata Party (BJP) on Sunday came out with the names of 63 candidates for the third and fourth phases of assembly polls in West Bengal, nominating four MPs including Union minister Babul Supriyo and several new faces, triggering protests and resignations in various parts of the state.

In a surprise move, the party nominated Trinamool Congress (TMC) turncoat and octogenarian sitting MLA of Singur, Rabindranath Bhattacharya. Of late, the BJP has not been nominating such elderly persons as poll candidates.

Addressing a press conference at the BJP headquarters in New Delhi, party general secretary Arun Singh and Union ministers Supriyo and Debasree Chaudhuri released the names of 63 candidates for West Bengal assembly polls.

For the high-stakes battle in the state, the BJP has fielded a Union minister, three sitting MPs, a noted economist and several film personalities. The list also has seven women candidates and eight turncoats, including former state minister and TMC leader Rajib Banerjee, who had recently quit the party to join the saffron camp. The list does not feature any candidate from the minority community.

Also read: Rakesh Tikait, Medha Patkar Share Stage in Nandigram, Ask People to Defeat BJP

While Supriyo, the Union minister of state for environment, forest and climate change, was nominated from the Tollygunge seat in Kolkata, Lok Sabha MPs Nisith Pramanik and Locket Chatterjee have been selected for Dinhata and Chunchura constituencies respectively.

Pramanik and Chatterjee, a former actor, have been fielded from assembly constituencies that come under their respective Lok Sabha seats. However, Supriyo has been nominated for a seat far away from his Lok Sabha constituency Asansol in Paschim Bardhaman district. He is pitted against senior TMC leader and minister Aroop Biswas.

Senior journalist and Rajya Sabha MP Swapan Dasgupta is the BJP’s nominee for the Tarakeshwar assembly segment. Outgoing MLA of Singur and octogenarian leader Rabindranath Bhattacharya, who had crossed over from the Trinamool Congress after it denied him the ticket due to age factor, has been fielded from the same seat by the BJP.

Besides Chatterjee, the party has given a ticket to film actors such as Tanushree Chakraborty from Shyampur in Howrah district and Payel Sarkar from Behala Purba in Kolkata. Actor Yash Dasgupta has also been nominated from Chanditala in Hooghly district.

Also read: Former BJP Leader Yashwant Sinha Joins TMC Ahead of West Bengal Assembly Polls

The BJP also nominated former chief economic advisor to the government, Ashok Lahiri, from the Alipurduar seat in North Bengal. He has also served as the chairman of the Kolkata-based Bandhan Bank and was a member of the Finance Commission from 2017 to 2020.

By fielding columnist Dasgupta and the economist Lahiri, the BJP has sought to impress the sophisticated Bhadralok community of the eastern state, political observers said, noting the Bengali intelligentsia refrained from backing the saffron party in 2019 Lok Sabha polls despite a large consolidation of Hindu votes around it.

Hours after the candidates’ names were announced, the rift between old-timers and newcomers in West Bengal BJP came out in the open as several aspirants voiced their anguish against the party and resigned after they were denied tickets, while protests were held across the state.

BJP leader and TMC turncoat Sovan Chattopadhyay along with his friend Baisakhi Bandyopadhyay quit the party after both of them were denied tickets. Chatterjee’s constituency for several decades, Behala Purba, was given to actor-turned-politician Payel Sarkar, who joined the party a few days back. In his resignation letter to the party’s state president Dilip Ghosh, Chattopadhyay accused the saffron camp of humiliating him.

Also read: ‘Conspiracy by BJP’: TMC’s Memorandum to EC Seeks Probe into ‘Attack’ on Mamata Banerjee

The nomination of Ashok Lahiri from the Alipurduar seat and Gorkha Janmukti Morcha turncoat Bishal Lama from Kalchini triggered a wave of protests in North Bengal with the local leadership hitting the streets. In Hooghly district’s Singur assembly constituency, BJP supporters locked up party functionaries over the nomination of TMC turncoat and sitting MLA Rabindranath Bhattacharya. Angry BJP workers ransacked a party office in Panchla seat in Howrah district, where TMC turncoat Mohitlal Ghati was given the poll ticket.

Rantideb Sengupta, who was fielded from Howrah Dakshin seat, declined to contest after the list was announced, citing personal reasons. However, the central leadership of the party intervened and persuaded him to contest from the constituency.

Protests were also held in various other constituencies after ticket aspirants didn’t find their names in the list. Shyampur is one such constituency where actor Tanushree Chakraborty, a newcomer in the BJP, was nominated. Several district-level leaders also resigned from the party after failing to get tickets.

The BJP’s Bengal leadership said that they would look into the matter and the issues would be resolved through discussions.

Elections to the 294-member West Bengal Assembly will be conducted in eight phases between March 27, 2021 and April 29, 2021. The counting of votes will take place on May 2, 2021.

Microfinance Operations Come to a Shuddering Halt in Lockdown Districts Across India

Rough estimates suggest, the districts in which lockdown has been imposed, account for close to 50% of microfinance business in India.

Kolkata: The lockdown to contain the spread of coronavirus has put the microfinance sector on the edge.

Both collection and disbursements of loans in 75 districts across India under lockdown is temporarily suspended, according to Manoj Nambiar, chairman, MFIN (Microfinance Institutions Network), the representative body of MFIs.

Rough estimates suggest, the districts in which lockdown has been imposed, account for close to 50% of microfinance business in India, according to Jagadish Ramadugu, MD and CEO, Vaya, a microfinance firm.

The gross loan portfolio of the microfinance industry at the end of December 2019 was Rs 2.11 trillion. Every month close to 10% of the portfolio gets repaid, according to Nambiar. This means that a large part of Rs 20,000-22,000 crore of monthly collection by the industry, including those by banks, would be disrupted.

Microfinance works on a high touch model, and most of the repayments and collections are done in groups of nine to ten people. The collections are mostly done on a weekly basis.

At stake also is the portfolio of several lenders, including Bandhan Bank. At the end of December 2019, the share of banks in microlending business was highest at 40%. For example, close to 60% of Bandhan Bank’s portfolio is from microfinance. C S Ghosh, MD, and CEO of the bank could not be reached for comments.

Also read: In the Fight Against the Novel Coronavirus, a Lockdown Can Only Be a Strategic Pause

Also at risk is the portfolio of small finance banks, which have close 90% of portfolio concentrated in the microfinance segment.

“There has been a lot of uncertainty in the sector, but due to the lockdown, all MFI operations have been suspended in Kerala,” according to K Paul Thomas, chairman and managing director of ESAF Small Finance Bank, based in Kerala. The state has been facing Corona outbreak for the last two weeks and starting today MFI operations have been halted in the state.

Many urban-centric MFIs that had been focusing on technology for increasing efficiency in the MFI sector too are affected by the crisis. For example, although Vaya, a tech-focused MFI, has asked all its backend employees to work from home, made possible on account of a cloud-based application, at the field level the business has been severely hit. Even though a part of the collection is cashless through a handheld device, it requires the physical presence of field officers at the spot.

“Till yesterday, the collection was more or less normal. However, post lockdown, all the collection activities have been suspended. This is a very difficult moment for the industry, and we do not know how long will it last,” said Ramadugu, MD and CEO, Vaya.

The microfinance sector has been witnessing turbulent times since the last few months with rising delinquencies due to protests against CAA (Citizenship Amendment Act). According to data from CRIF MicroLend for Q3 of this financial year, the portfolio at risk (PAR) for the industry for repayment between 31 and 180 days stood at 1.5%, which was 50% higher on a year-on-year basis.

By arrangement with Business Standard.

RBI Imposes Rs 1-Crore Penalty on Bandhan Bank

The penalty has been charged for non-compliance with guidelines, the central bank said.

Kolkata: The Reserve Bank of India (RBI) on Tuesday imposed a penalty of Rs 1 crore on Bandhan Bank for not bringing down the promoter shareholding to 40%.

Bandhan MFI had obtained in-principle universal banking license from the central bank in 2014 and started full-fledged operations as a bank from August 2015.

RBI imposed the penalty on account of the failure to pair the shareholding of Bandhan Financial Holdings Ltd to 40 per cent of its paid-up voting capital, within three years from commencement of the business of the bank, the lender said in a BSE filing.

Bandhan Bank came out with an IPO and got listed in March 2018.

The bank had recently merged with Gruh Finance, which brought down the shareholding of the promoter from 82.26% to 60.96%.

The lender had earlier said it was making efforts to further reduce the shareholding to 40 per cent.

(PTI)

Why Acquiring Gruh Finance Made Sense for Bandhan Bank

After the IL&FS-caused liquidity crunch, Bandhan can be there, ready and waiting with both the resources and the expertise to hike its affordable loan portfolio.

The attention span of the purveyors and consumers of business news is extremely short. Bandhan Bank acquiring Gruh Finance, therefore, is a deal done and left behind. When the news broke, most analysts felt the country’s youngest universal bank had overpaid to acquire the affordable housing finance subsidiary of HDFC.

This is indeed the case if we go by the valuation numbers available and the share swap ratio. But that does not give the whole picture and here is an alternative scenario and a contrary view.

Bandhan Bank is in a bit of a fix as it has been put under restrictions because of its inability to stick to the Reserve Bank of India schedule to reduce its promoters’ stake to 40%. The Gruh acquisition will go part of the way in reducing that stake, from 82% to 61%. Therefore it can be taken as a transaction done under some pressure and so may not be on the best possible commercial terms.

But what is important is that there are several other factors going in favour of the deal in commercial terms too and the big difference in perception can have resulted from analysts having the short-term perspective of equity investors whereas Bandhan is simply taking a longer-term view.

Bandhan is acquiring a readymade portfolio of affordable housing loans whose quality is assured by the standards associated with HDFC, which is a leader in the housing finance market. Post-merger, retail home loans will account for 28% of Bandhan’s loan book compared to negligible pre-merger.

FILE PHOTO: A bird flies past a window of a HDFC Bank branch office in Mumbai, India, October 21, 2015. Credit: Reuters/Shailesh Andrade/File Photo

This affordable housing loan portfolio is important for Bandhan as, through it, the microfinance institution turned bank is taking the next step in growing its loan book in such a manner that over time it starts resembling that of any other bank.

It is yet to go in for corporate lending in view of the fact that such lending has been fraught. The high level of NPAs of nationalised banks bears testimony to that. Affordable housing finance loans, which are disbursed to individuals, offer a good stepping stone by way of bigger ticket loans for an erstwhile microfinance organisation.

But Bandhan did not start life as a housing finance company; Gruh did. The portfolio that Bandhan bank is taken over will offer it a chance to see what good quality housing loans look like and derive parameters for it to undertake its own journey into affordable housing finance.

Although Bandhan has been a universal bank since late 2015, as much as 87% of its leading continues to be in its legacy small ticket microfinance area. As a result of the acquisition, the share of its microfinance loan portfolio will go down to 58%.

Bandhan also needs to go in for higher ticket lending in order to place gainfully the substantial deposits it has been acquiring. As a microfinance organisation, it was not permitted to accept deposits and hence when it became a bank, its deposit base was zero, its entire loan portfolio being financed by borrowings, mostly from banks.

But in four years its reliance on borrowings has come down to under 1%. It has been able to acquire a deposit base of Rs 34,600 crore (September 2018), thanks to the good brand recognition that it has come to have, particularly in eastern India. Today almost its entire loan portfolio of Rs 35,600 crore is funded by its own deposits, like other banks.

As a microfinance entity, Bandhan borrowed at around 10% but now its cost of funds is 6.3%, with low-cost CASA (current and savings account) deposits accounting for 41% of total deposits.

There is also a crisis in the NBFC sector, particularly housing finance companies which borrowed short and lent long. In the wake of the IL&FS crisis, they are facing some difficulty in rolling over their borrowing and consequently not in a position to entertain the new customers seeking affordable housing loans.

Also read: What Triggered the Downfall of IL&FS?

In this situation of a dearth of liquidity, Bandhan is there ready and waiting with both the resources and the expertise to hike its affordable loan portfolio.

The affordable housing loan portfolio is important for Bandhan. Credit: Reuters

It also needs to be noted that the economy’s ability to absorb affordable housing finance loans is virtually unlimited, what with the GDP growing at a rapid rate and the many government incentives for affordable housing loan customers. Public sector commercial banks who should be ideal in stepping into this opportunity have troubles of their own, what with a good half of them unable to make fresh lending for having been put under the RBI’s “prompt corrective action” restrictions.

There is a further aspect – the nature of microfinance customers who seek affordable housing finance. Their title to the land or the property that they may be already occupying often may not be of the best quality. As you move from the core areas of cities to slums or semi slums, recognised or unrecognised, microfinance borrowers who live there are often eager to improve the quality of their lives by living in better conditions through home improvement or acquiring a small place of their own.

Banks like Bandhan and the small finance banks began life as microfinance organisations whose sole portfolio was giving small unsecured loans to poor women to improve their incomes. The organisations survived and thrived on their critical ability to know their customers. They have had an NPA rate of less than 2% and Bandhan now has a gross NPA of 1.3%, the same as private banks market leader HDFC Bank.

The nationalised banks did not have this customer connect and so turned in vastly poor loan recovery rates where microfinance organisations thrived.

It is this expertise that Bandhan historically has and it will be able to give affordable housing loans to customers who have a good track record of repayment but whose paperwork (title documents or whatever may go by that name) may not be the best which the banks’ lawyers would like.

So Bandhan Bank stands a chance of making a success of its acquisition of Gruh by learning from its paperwork, being able to access its proprietary operating system and using that in conjunction with its customer knowledge to build up a good affordable housing loan portfolio.

Subir Roy is a senior journalist and the author of Made in India: A study of emerging competitiveness (Tata Mcgraw Hill, 2005) and Ujjivan: Transforming With Technology (OUP, 2018).

RBI Clamps Down on Bandhan Bank Over Owner’s Stake

The non-banking financial company sector is in trouble after a series of defaults by one of the biggest names in the sector raised fears of a credit crunch that roiled India’s financial markets in the past week.

Mumbai: Bandhan Bank Ltd said on Friday the Reserve Bank of India (RBI) had withdrawn its “general permission” to open new branches and frozen its chief executive’s salary for failing to bring down its main shareholder’s stake to below 40%.

The bank is majority owned by Bandhan Financial Holdings Ltd, a so-called non-banking financial company (NBFC) that does not take deposits. Bandhan Financial Holdings has an 82.28% stake in the bank.

The NBFC sector is in trouble after a series of defaults by one of the biggest names in the sector raised fears of a credit crunch that roiled India’s financial markets in the past week.

The turmoil in domestic bonds, stocks and the rupee prompted the Reserve Bank of India (RBI), the country’s market regulator and the finance ministry to intervene with assurances.

Bandhan Bank said it was taking necessary steps to comply with the licensing condition to bring down its main shareholder’s stake to 40%.

“The bank can open branches with prior approval of RBI and the remuneration of the managing director and CEO of the Bank stands frozen at the existing level, till further notice,” the lender said in a statement.

Kolkata-based Bandhan Bank is a former micro lender, which was one of two companies that won bank permits from the Reserve Bank of India in 2014.

It is known for its low-cost model and high margins. According to its website, the bank has 937 branches across India.

Shares in Bandhan closed down 0.9% on Friday.

(Reuters)

Rural Financial Inclusion: Small Finance Banks Could Pick up Where Public Sector Banks Left Off

While the demonetisation tsunami sorely hurt the microfinance industry, Bandhan Bank offers a good template for what MFIs can do after acquiring banking licenses.

Microfinance institutions lend at between 20% and 26% and are able to get all their money back with negligible non-performing assets. Credit: Reuters

A fundamental change is taking place in Indian banking which has the potential to become as dramatic as bank nationalisation. The process is understood, but its likely impact is not. Hence the issue is missing from headlines.

Chandra Shekhar Ghosh, founder and chief of Bandhan Bank, the only microfinance institution to become a universal bank, hits the nail on the head when he says, “By 2030 microfinance institutions (MFIs), small finance banks and banks like Bandhan (coming up from the bottom) will dominate rural banking and they will remain absolutely viable.”

Ghosh is not the only financial sector leader to think along these lines, but he is particularly qualified to say what he has because of the way in which Bandhan Bank has fared in the first two years of its operations as a universal bank. So, first, a look at what Bandhan Bank has achieved and then outlining how this feeds into a bigger picture.

In public displays, Bandhan Bank is celebrating the completion of its second year by claiming that it is the fastest growing bank in India. But a far more important achievement lies in what it has done in one half of its business – getting deposits. When it started off in August 2015, it took over the entire microfinance loan portfolio of its earlier avatar. So it had a readymade loan book to begin with.

But on the liabilities side of its business, it began with zero deposits. As an MFI, it was not allowed by the banking regulator, Reserve Bank of India, to accept deposits (your savings and mine) and had to lend from loans taken from banks. Now it could accept deposits as a bank. In two years, by the end of the first quarter of the current financial year (June 30, 2017), it has been able to fund its entire lending programme totalling Rs 21,400 crore from its own deposits, which totalled Rs 22,400 crore. Simultaneously, it has been meeting all the reserve requirements of the RBI and maintaining a healthy capital adequacy ratio of 26%.

According to Ghosh, when Bandhan Bank started off it was able to cajole its consultants to set a target of Rs 3,500 crore of deposits for the first year (they were inclined to be more conservative). In seven months it achieved a deposit base of Rs 12,000 crore. The strategy that enabled this had two elements – reaching people and providing service. People want a service at a branch which does not make them wait for long. “The physical touch, customer relationship at the branch, will remain important. Over the internet you can find out the interest rate, not the type of behaviour you will get. It is the branch infrastructure that reaches the bank to the people. Rural people find a bank branch to be a bit forbidding. There is a need to make a bank branch simple, not hi-fi.”

The opportunity that Bandhan Bank has exploited is the continued “weak banking structure” in rural areas. Existing banks have been hamstrung by the inability to get qualified staff to serve in rural branches. Those that agree to insist on commuting from nearby urban areas. Plus, existing banks have been unable to reconcile themselves to the reality that rural branches take longer to break even.

While on the deposit side the bank has been able to deliver in a new area, on the lending side there has been considerable continuity. In granting loans, the bank substantially retains its microfinance character. This business continues and is growing, with microfinance type of loans accounting for 90% of total lending. It lends to individuals and the MSME (micro, small and medium enterprises) sector, with average loan size to the latter being around Rs 5 lakh, and no lending to corporates at all.

As half a startup, Bandhan Bank is growing fast, but how profitable are its operations? A comparison with HDFC Bank, the performance leader among Indian banks, is instructive, although the two are not strictly comparable. In the 2017 financial year, Bandhan Bank secured a return on assets of 4.5%, HDFC Bank 1.9%. On the bad debts front, Bandhan Bank recorded gross non-performing assets (to total assets) of 0.82%, HDFC Bank 1.05%. On net interest margin (difference between overall lending rate and borrowing rate) which gives a measure of profitability of operations, Bandhan Bank clocked 10.75% and HDFC Bank 4.3%.

The huge difference in the last measure is explained by legacy factors. From borrowing from banks at around 10%, Bandhan Bank is now able to access deposits at a rate which is several percentage points lower. Also, microfinance loans are given at upwards of 20%, whereas commercial banks lend at almost half that rate.

Microfinance, which lends without securities to women at the bottom of the pyramid, is intrinsically strong. Credit: Peter Haden/Flickr CC BY 2.0

Demonetisation risks

Can we use the financial performance of Bandhan to reflect the strength of the entire microfinance sector? Here we come up against the tsunami that demonetisation has unleashed on the microfinance sector whose borrowers deal mostly in cash.

The portfolio at risk or PAR (as measured by loans which are overdue for 30 days) of the microfinance institutions registered as non-banking financial companies (NBFCs) with the RBI or NBFC-MFIs (these are the big MFIs) sector rose from a mere 0.4% in FY 2016 to 14.1% in FY 2017 as a result of demonetisation, according to Micrometer, brought out by Microfinance Institutions Network, the body which represents NBFC-MFIs. But interestingly, the PAR falls when we look at longer periods. It is 8.2% for loans overdue for 90 days and down to a negligible 0.22% for loans overdue for 180 days. Hence borrowers did have initial difficulty in repaying but recovered over time.

One reason why the microfinance sector as a whole has not done as well as Bandhan Bank is that as a bank, it could accept old currency notes immediately after demonetisation which MFIs could not. Hence Bandhan Bank was able to achieve huge deposit growth, making demonetisation a blessing in disguise. But MFIs, which could not accept old currency notes, suffered through delayed repayments which involved writing off of overdue interest when the principal was cleared and the overall cash crunch putting a damper on fresh disbursement, affecting the bottomline twice over.

But the inherent robustness of the MFI sector becomes clear when we see that its gross loan portfolio rose by 25% in FY 2017, compared to 201.8% (doubling) achieved in the previous year, that is financial year 2016.

To come back to where we began, microfinance, which lends without securities to women at the bottom of the pyramid, is intrinsically strong. What the best among them can do is indicated by what Bandhan Bank has been able to do after it could accept low-cost deposits instead of taking high-cost loans from banks. And the good news is that eight leading MFIs have been given the licence to operate as small finance banks (these are able to accept deposits) and several of them have converted.

The final bottomline is that microfinance institutions lend at between 20% and 26% and are able to get all their money back with negligible non-performing assets, compared to nationalised banks which suffer from the poor repayment of small loans. As small finance banks, even if they gradually bring down their lending rates (Bandhan Bank has done so) they will still have lots of margin room to play with, going by the net interest margin of Bandhan Bank.

Banks were nationalised to make banking accessible to all. Public sector banks achieved this task in part and there remained a large unfinished task in terms of completing the process of financial inclusion. Today’s microfinance sector (comprising different elements) will finish this unfinished task and thereby become a dominant player in rural India’s financial sector. This is what Ghosh is quoted as saying right at the beginning of this piece.

Subir Roy is a senior journalist and the author of Made in India: A study of emerging competitiveness (Tata Mcgraw Hill, 2005) and the forthcoming Ujjivan: The microfinance frontrunner (OUP).