Bandhan Microfinance : Is Transformation to Bank

Status Required ?
By –
Group 2
• Vaibhav Solanki
• Vivek Kumar Saini
• Sankhadeep Saha
• Rahul Kumar Sinha
• Sundeep Yadav
• Shivam Kumar Arya

giving tiny loans to help the poor in Kolkata's suburban town of Konnaga. .• Chandra Shekhar Ghosh started out as a worker in a non-governmental organisation (NGO) in 2001.

.• 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 .

A very large part of rural India is yet not free from the shackles of poverty. A microfinance institution just like our Bandhan Bank caters to a large number of rural poor people by providing them facilities of loan and interests on various deposits. This is effective in reducing the gap between the poor strata and the formal financial organisations. It has an additional responsibility of serving the economically marginalised class. This evil is slowly seeping amongst the urban Indians too. 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. • Micro-finance institution is considered as one of the most effective tools in reducing poverty. poor families and impoverished women. WHY THERE IS A NEED OF MFIS ? • Poverty is the main cause of concern for this country since time immemorial. • 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 .

•They charge high interest rates on loans from 20% to 25% . 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.

•Loans provided were unsecured and not backed by collateral •Loans were repaid on a weekly. cashier . FUNCTIONING OF THE BRANCHES •Bandhan followed a group based approach for extending financial services. fortnightly or monthly basis •Branches were managed by branch manager. 5 credit officers.

CUSTOMER EVALUATION & OFFERINGS • Appraisal was done by the field Produc Offeri Rate of Purpos officer to check the borrower’s t ng& Int. 22. 22. e eligibility Suchan 1k. n by existing borrowers.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.9% Micro officers and then by branch loan 50k Ent. then by credit Srishti 16k. 22.9% Microloa • Individual borrowers were screened a 15k. committee Samrid 51K. 22.9% Piscicult s 100k ure .

weekly. 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 . monthly.MANAGEMENT INFORMATION AND MANAGING RISK • Well built IT infrastructure with accounts • Each branch maintained its account & fund demand statements were prepared on a daily.

12. • Low attrition rate. . It has become synonym for microfinance.76% as against industry average of 35%. • 40% of its branches were located in unbanked areas. • Robust training infrastructure for human capital specially for field staffs. covering 263 branches serving 3991 villages and 1213 towns.BANDHAN’S DIFFERENTIATORS • Model based on ‘simplicity’ and ‘customer centricity’.Developmental programs were active in 41 districts from nine states.Staff is called ‘Bandhan Sir’ by customers. • Building customer relationships. • Engagement in developmental activities.


MFI TO BANK-THE MOTIVATION • The rural population has fewer opportunities to access banks. 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. • After becoming a bank. Bandhan has been working in these economically backward areas and maintains good relations with the people. This permanent sources of funds reduces the financial cost of banks. . 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.

respect for the client and recognition by independent agencies owing to a wide range of value-added services provided by Bandhan.Bandhan saw a huge opportunity to capitalize on this dearth in financial inclusion and bring a huge mass of customers under its fold. unlike banks.Bandhan is located in East and North-Eastern India. an NBFC cannot issue cheques drawn on itself. . • The geographical location where Bandhan was first was a key factor.Bandhan would look to reduce the number of defaulters.• It is not a part of the payment and settlement system and as such. • Strong organizational ethics . and deposit insurance facility of the Deposit Insurance and Credit Guarantee Corporation is not available for NBFC depositors. • Loans borrowed from MFI’s are not backed by securities and by licensing itself as a bank. most of which is financially excluded.

KEY FINANCIAL INDICATORS • Over the period 2007-08 to 2012-13.the bank witnessed growth in the following parameters: Net Interest Income – CAGR=142.Also.73% Number of branches=Grew by 38.Banks accepted deposits at a lower rate and even after incurring operational costs.the interest rates became very low.cost of borrowings as an MFI was high. .83% Thus .71% Total Asset Size-CAGR=145.CAGR=165.we see that Bandhan had remained not only profitable but scalable too.68% Profits.

.  80% of its operations in rural areas.  Compliance with banking policies was a major challenge. given that Bandhan had the lowest operational cost in microfinance industry. sustaining a high-cost banking model could be a tough task.  A bank branch would incur higher fixed and operational costs compared to an MFI branch.CHALLENGES FOR BANDHAN  Bandhan field staff members were trained in micro- credit activities but lacked the experience of savings mobilization. suffered huge power shortages.  Tough to integrate the existing field staff with highly skilled bank branch employees.

COMPLIANCE WITH BANKING POLICY  Maintaining SLR and CRR ratios would squeeze the expected capital funds out of deposits.  Under the new banking policy. whereas MFIs could open their branches anywhere. professionals and self employed individuals .  Bank would have to comply with the norm of minimizing unsecured loan portfolio which may hurt its future loan income. retail traders. 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.  More stringent regulations regarding opening branches in Tier 1 and Tier 2 cities.

600 crore in Bandhan • March 2015: Announces appointment of Madison Media for formulating an advertisement strategy . 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.

BANDHAN BANK’S PERFORMANCE FOR 2015-16 8. YES) • CASA of the bank stood at 21.4 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.55% • Cost of funds has come down to 8% considering cheaper deposits • Net NPAs are way lower than industry average as of now .