MICROCAPITAL BRIEF: Indian Microfinance Institution Bandhan to Apply for Banking License

Indian microfinance institution (MFI) Bandhan Financial Services Private Limited reportedly has announced plans to apply for a banking license under the revised regulations on new bank licenses recently issued by the Reserve Bank of India, the country’s central bank. These regulations require minimum paid-up capital of INR 5 billion (USD 91 million) and a minimum of 25 percent of the bank’s new branches to be located in areas with populations under 10,000. Chandra Shekhar Ghosh, chairman and managing director of Bandhan, reportedly said, “We are preparing to apply for [a] bank license as we aim to provide financial services in un-banked and rural areas,” and added that the MFI had enough capital to meet the RBI requirement. The reason for converting into a bank was not disclosed, but MFIs often make such moves to expand the range of sources from which they are allowed to raise investments. Bandhan originally announced plans to do so in 2011.

As the end of fiscal year (FY) 2011, Bandhan reported a gross loan portfolio (GLP) of USD 733 million, which decreased to USD 703 million in FY 2012. Mr Ghosh reportedly commented that Bandhan’s goal is to grow its loan portfolio by approximately 30 percent this fiscal year.

As of February 2012, Bandhan operates approximately 1,770 branches in 18 states in India. As of December 2012, the institution reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 842 million and 4.2 million active borrowers. As of March 2012, it reported return on assets (ROA) of 6.44 percent, return on equity (ROE) of 37.6 percent and total deposits of USD 10.3 million from an undisclosed number of borrowers. During the fiscal year ending March 2013, the company reportedly securitized loans worth INR 3.6 billion (USD 65 million) compared with INR 7.2 billion (USD 134 million) in the previous fiscal year.

By Nicole Boyd, Research Associate

About Bandhan Financial Services Private Limited
Bandhan Financial Services Private Limited is a microfinance institution (MFI) based in Kolkata, India, that was founded in 2002. As of February 2012, Bandhan operates approximately 1,770 branches in 18 states in India. As of December 2012, the institution reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 842 million, a gross loan portfolio of USD 703 million and 4.2 million active borrowers. As of March 2012, it reported return on assets (ROA) of 6.44 percent, return on equity (ROE) of 37.6 percent and total deposits of USD 10.3 million from an undisclosed number of borrowers.

About Reserve Bank of India (RBI)
Established in 1935, the Reserve Bank of India (RBI) undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While non-banking financial companies such as for-profit microfinance institutions operate under RBI regulations, the responsibility for inspecting agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5 percent stake in the outfit, RBI owns a one-percent stake in NABARD as of 2011.

Sources and Additional Resources:

The Economic Times. “Bandhan Microfinance keen on banking foray; securitises Rs 355 crore loans,” http://articles.economictimes.indiatimes.com/2013-04-09/news/38404447_1_disbursement-banking-licence-mfi

MicroCapital. April 6, 2013, “MICROCAPITAL BRIEF: Indian Institute of Management at Ahmedabad (IIMA) Report Indicates Bandhan Clients Increased Wealth,” https://www.microcapital.org/microcapital-brief-indian-institute-of-management-at-ahmedabad-iima-report-indicates-bandhan-clients-increased-wealth/

MicroCapital, March 11, 2013, “MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Releases Regulations Governing New Bank Licenses,” https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-releases-regulations-governing-new-bank-licenses/

MicroCapital. February 29, 2012, “MICROCAPITAL BRIEF: Bandhan Financial Services Sells $112m in Securitized Loans to Industrial Development Bank of India (IDBI), Axis Bank, Development Credit Bank,” https://www.microcapital.org/microcapital-brief-bandhan-financial-services-sells-5b-in-securitized-loans-to-industrial-development-bank-of-india-idbi-axis-bank-development-credit-bank/

MicroCapital. September 20, 2011, “MICROCAPITAL BRIEF: Indian Microfinance Institution Bandhan Financial Services to Apply for Banking License,” https://www.microcapital.org/microcapital-brief-indian-microfinance-institution-bandhan-financial-services-to-apply-for-banking-license-2/

MicroCapital Universe Profile: Bandhan Financial Services Private Limited?https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bandhan+Microfinance

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