Bandhan Bank commences operations with loan book of Rs 10,500 cr

Bandhan Bank commences operations with loan book of Rs 10,500 cr

Bandhan Bank commenced operations today with the simultaneous launch of 501 branches, a loan book of nearly Rs 10,500 crore and savings accounts totaling 1.43 million.

Within few hours of the formal inaugural of the bank, Bandhan had garnered a deposit of Rs 80 crore, and 60,000 new accounts. Nearly 18 of the bank's new branches will be open seven days a week.

At inception, the bank's capital base is Rs 2,570 crore, against the regulatory requirement of Rs 500 crore.

In addition, the bank is in the process of obtaining additional funding of nearly Rs 482 by multilateral financier International Finance Corporation (IFC) and the Singapore government-backed GIC, which will bolster its base to Rs 3,052 crore, translating into a credit risk weighted asset ratio (CRAR) of 44.54% — one of the highest in the industry.

As of now, borrowing from Bandhan might not be cost-effective, as the bank has set a high base rate of nearly 12%, against its cost of funds of nearly 12.5%. Bandhan bank's borrowing from banks at present stands at about Rs 9,000 crore, which it expects to repay in the next two to three years.

The bank is depending on aggressive deposits mobilisation to bring down the cost of funds over the next one year. Over the next few months, Bandhan will go slow in lending and aggressive in taking deposits. Thus, even as the lending rates are high, the bank is offering competitive deposit rates. The savings interest rates have been fixed at 4.25% for deposits below Rs 1 lakh, and 5% for above Rs 1 lakh. For term deposits, the maximum interest rate, between three to five years of maturity, has been fixed at 8.5%, with additional 0.5% for senior citizens.

"The lending rate will depend on the cost of funds. As of now we are struggling to get deposits. As and when we have enough deposits to bring down the cost of funds, we will reduce the base rate. We will pass on every reduction of cost of funds to the borrower, as an when it happens," said CS Ghosh, managing director and chief executive officer, Bandhan Bank.

At the onset, the bank sought flexibility in operations from Reserve Bank of India.

"We will continue to focus on rural and semi-urban areas. However, give us some flexibility," said Ghosh pointing at H R Khan, deputy governor, RBI, who was present at the inaugural function. However, Ghosh did not elaborate on the kind of relaxations that Bandhan seeks from RBI.

In response, Khan in his speech said, "Regulatory issues are being considered, and considered, sympathetically,"

By the end of this financial year, the bank plans to have 632 branches and 250 ATMs in 27 states. At present, it has about 50 ATMs.

Bandhan has put its corporate banking plans on hold as of now.

"Corporate banking is a different kind of skill, which we are yet to develop. We will continue to focus on rural and semi-urban areas, particularly the SMEs," said C S Ghosh, managing director and chief executive officer, Bandhan Bank.

At present, Bandhan Bank has nearly 24 ATMs across 24 states. By the end of this financial year, the bank plans to have 632 branches and 250 ATMs in 27 states.

Of the 501 new bank branches, a little less than half or 229 branches are in rural areas and 179 in unbanked areas. The bank will have nearly 70% of its branches in rural areas, said a press release by Bandhan Bank.

The integration of Bandhan's microfinance business with banking business will take place through creation of two verticals at each branch level-the microfinance and retail banking operations.

As of now the bank has nearly 19,500 permanent staff.

@Photo: Bandhan CMD C S Ghosh unveiling the new logo of Bandhan in Kolkata (pic: Subrata Majumder)