Bandhan Microfinance : Is Transformation to Bank

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By
Group 2
Vaibhav Solanki
Vivek Kumar Saini
Sankhadeep Saha
Rahul Kumar Sinha
Sundeep Yadav
Shivam Kumar Arya
 Chandra Shekhar Ghosh started out as
a worker in a non-governmental
organisation (NGO) in 2001, giving tiny
loans to help the poor in Kolkata's
suburban town of Konnaga.
 Bandhan bank is the largest MFI in India
It opened up with 501 branches and 51 ATMs
just on day one!
Over 71 per cent of its branches are in rural
India including 35 per cent in unbanked rural
pockets.
INTRODUCTION TO MFIS

The concept of microfinance started in the

late 1990s aim to lend low income group and
MSEs
Classified into five categories
Cooperatives
NGOs
Government Banks
NBFIs
Micro Finance Banks
 WHY THERE IS A NEED OF MFIS
?
Poverty is the main cause of concern for this country since time
immemorial. A very large part of rural India is yet not free from the
shackles of poverty. This evil is slowly seeping amongst the urban
Indians too. A microfinance institutionjust like our Bandhan Bank
caters to a large number of rural poor people by providing them
facilities of loan and interests on various deposits.

Micro-finance institution is considered as one of the most effective

tools in reducing poverty. This is effective in reducing the gap
between the poor strata and the formal financial organisations. Not
just in India but every country where poverty is rampant can resort
to this kind of banking as it provides credit to micro-entrepreneurs,
poor families and impoverished women. It has an additional
responsibility of serving the economically marginalised class.

The microfinance business models are designed to address the

challenges which are faced by the traditional financial services in
bringing the unprivileged section together and making them aware
 BUSINESS MODEL
Mission To reduce socio-economic poverty sustainably and create
employment by targeting low-income households accross the country through
providing cost-effective sustainable financial and non-financial services
emphasizing on social securities.

It adopted a group formation model

Loans are disbursed at Branch office and the repayment of
installment of occurred at group meetings.
The involvement of a co-borrower reduced the risk for
Bandhan
They have cost-effective model
Target customers Unbanked rural customers and MSEs.
They charge high interest rates on loans from 20% to 25%
 FUNCTIONING OF THE
BRANCHES
Bandhan followed a group based
approach for extending financial
services.
Loans provided were unsecured
and not backed by collateral
Loans were repaid on a weekly,
fortnightly or monthly basis
Branches were managed by
branch manager, 5 credit officers,
cashier
CUSTOMER EVALUATION &
OFFERINGS
Appraisal was done by the field Produc Offeri Rate of Purpos
officer to check the borrowers t ng& Int. e
eligibility
Suchan 1k- 22.9% Microloa
Individual borrowers were screened a 15k, n
by existing borrowers, then by credit
Srishti 16k- 22.9% Micro
officers and then by branch loan 50k Ent.
committee
Samrid 51K- 22.9% MSME
Primary responsibility of collecting hi 500K
the repayments was with the CO Suraksh 1k-10k 12% Micro
a Health
Bandhan offered six types of loan Plan
products
Sushiks 1k-10k 12% Educatio
ha n
Fisherie 10k- 22.9% Piscicult
s 100k ure
MANAGEMENT INFORMATION
AND MANAGING RISK
Well built IT infrastructure with accounts
Each branch maintained its account & fund demand
statements were prepared on a daily, weekly, monthly,
and six monthly basis
Bandhan had a strong audit team in place for overseeing
the functioning of internal controls
Risk management team was headed by GM(risk and
internal audit)
Established a vigilance dept. headed by CVO
BANDHANS DIFFERENTIATORS

Model based on simplicity and customer centricity.

Robust training infrastructure for human capital specially for field
staffs.
Low attrition rate- 12.76% as against industry average of 35%.
40% of its branches were located in unbanked areas.
Building customer relationships- Staff is called Bandhan Sir by
customers. It has become synonym for microfinance.
Engagement in developmental activities- Developmental programs
were active in 41 districts from nine states, covering 263 branches
serving 3991 villages and 1213 towns.
BANDHAN AND ITS
COMPETITORS MARKET SHARE
MFI TO BANK-THE MOTIVATION

The rural population has fewer opportunities to access banks. Bandhan has
been working in these economically backward areas and maintains good
relations with the people. We can offer a complete financial package
Banking activity of this kind would also protect investors in rural areas
from nefarious ponzi schemes that have ruined many unsuspecting
villagers.
Banks have the advantage of accepting deposits from customers which an
MFI does not have. This permanent sources of funds reduces the financial
cost of banks.
After becoming a bank, it would avail a gamut of savings services from its
customers and this would help leverage the existing high volume of
customers to its favour.
 It is not a part of the payment and settlement system and as such, an NBFC
cannot issue cheques drawn on itself; and deposit insurance facility of the
Deposit Insurance and Credit Guarantee Corporation is not available for NBFC
depositors, unlike banks.
The geographical location where Bandhan was first was a key factor.Bandhan is
located in East and North-Eastern India, most of which is financially
excluded.Bandhan saw a huge opportunity to capitalize on this dearth in
financial inclusion and bring a huge mass of customers under its fold.
Strong organizational ethics ,respect for the client and recognition by
independent agencies owing to a wide range of value-added services provided
by Bandhan.
Loans borrowed from MFIs are not backed by securities and by licensing itself
as a bank,Bandhan would look to reduce the number of defaulters.
KEY FINANCIAL INDICATORS

Over the period 2007-08 to 2012-13,the bank witnessed

growth in the following parameters:
Net Interest Income CAGR=142.68%
Profits- CAGR=165.71%
Total Asset Size-CAGR=145.73%
Number of branches=Grew by 38.83%
Thus ,we see that Bandhan had remained not only profitable
but scalable too.Also,cost of borrowings as an MFI was
high.Banks accepted deposits at a lower rate and even after
incurring operational costs,the interest rates became very low.
CHALLENGES FOR BANDHAN

Bandhan field staff members were trained in micro-

credit activities but lacked the experience of savings
mobilization.
Tough to integrate the existing field staff with highly
skilled bank branch employees.
80% of its operations in rural areas, suffered huge
power shortages.
A bank branch would incur higher fixed and operational
costs compared to an MFI branch. sustaining a high-cost
banking model could be a tough task, given that
Bandhan had the lowest operational cost in
microfinance industry.
Compliance with banking policies was a major
challenge.
COMPLIANCE WITH BANKING
POLICY
Maintaining SLR and CRR ratios would squeeze the expected
capital funds out of deposits.
Bank would have to comply with the norm of minimizing
unsecured loan portfolio which may hurt its future loan income.
More stringent regulations regarding opening branches in Tier 1
and Tier 2 cities, whereas MFIs could open their branches
anywhere.
Under the new banking policy, new bank would have to comply
with priority sector lending, under which 40% of money loaned
to a certain segment of customers such as agriculture, small
businesses, retail traders, professionals and self employed
individuals
 ORIGINATION OF BANDHAN
BANK
April 2014:Bandhan gets in-principle nod for banking licence
May 2014:Announces appointment of Deloitte as advisor for
formation of Bandhan bank
August 2014:Announces appointment of Aon Hewitt to design
and implement a compensation strategy for workforce
September 2014:Announces the appointment of FIS as
technology partner
September 2014:Announces appointment of Ogilvy & Mather for
brand building
January 2015:Announces IFC & GIC SI will commit fresh equity
investment of Rs 1,600 crore in Bandhan
March 2015:Announces appointment of Madison Media for
formulating an advertisement strategy
 BANDHAN BANKS PERFORMANCE FOR 2015-16

8.4 million customers 670 Branches

Reported a net profit of 275 Crores in first seven

months only
99% of the gross advances are from microfinance
operation
Sold priority loans worth 3200 Cr to big lenders
(HDFC, YES)
CASA of the bank stood at 21.55%
Cost of funds has come down to 8% considering
cheaper deposits
Net NPAs are way lower than industry average as of
now
THANK
YOU