Chandra Shekhar Ghosh, managing director and CEO of Bandhan Bank, is an unusual banker. Unlike his peers, Ghosh doesn’t possess an MBA from an Ivy League school. He operates out of the bank’s Kolkata headquarters, again an aberration given that most bankers work out of Mumbai, India’s financial capital. Ghosh, in short, is an outlier who earned his success against unlikely odds, much like his five-year-old institution, Bandhan Bank, which today commands a market capitalisation of over ₹56,000 crore (about $7.5 billion).

“I am not a banker. But I have a strong understanding of people’s needs at the grassroots level,” says the 60-year-old awardee of the Ashoka Fellowship, a recognition for leading social entrepreneurs globally.

Despite not having a commercial banking pedigree, Ghosh’s Bandhan Financial Services was the first microfinance company in the country to win a banking licence from the Reserve Bank of India (RBI) in April 2014. The only other applicant was infrastructure financing company IDFC, which was also given a new bank licence.

Bandhan Bank, which started operations as a commercial bank in August 2015, follows a different model than its larger peers, State Bank of India, HDFC Bank, ICICI Bank, and others.

Analysts see Bandhan Bank as a “unique Indian financial services play” that primarily focusses on microfinance, affordable housing, and micro, small and medium enterprises (MSMEs), targeting the country’s large unbanked population and underpenetrated markets.

“Bandhan is in a different space compared to other universal banks. Its DNA is financial inclusion and to serve the vast unserved segments of our society,” says Samit Ghosh, founder of Ujjivan Financial Services, one of India’s most successful non-banking finance companies (NBFCs), which is now a small finance bank.

The decades of experience Ghosh has in understanding people’s needs in the rural and semi-urban markets has served Bandhan Bank very well in the last five years.

Analysts say Bandhan’s current account savings account (CASA) deposit ramp-up is the fastest when compared with any other private-sector lender during its initial years of operations. As brokerage firm CLSA points out, Bandhan took just 12 quarters to ramp up its CASA ratio to 40% in December 2018 from 21% in March 2016. In comparison, its larger peer IndusInd Bank took 33 quarters to reach that target, while Kotak Mahindra Bank took 40. The CASA ratio is a key indicator of a bank’s financial health and shows its capacity to raise money with lower borrowing costs.

Bandhan Bank—No. 117 on the 2020 Fortune India 500 list—has seen a steady rise in retail deposits, which is currently on a par with large banks. “After Kotak, Bandhan is the only midsized bank that has been able to scale up retail deposits in the last decade,” argues the recent CLSA report. For FY20, Bandhan’s ratio of retail deposits to total deposits was recorded at 78.4% as against 77.4% in the year-ago period. For the last fiscal, the bank reported retail deposits of ₹44,760 crore. For the September quarter, the bank posted net interest income (NII) of ₹1,923.1 crore, up 26% as against ₹1,529.0 crore a year ago.

Catering to a customer base of 20.8 million people, Bandhan Bank had a loan book of ₹76,620 crore, with 1,045 branches across the country. Its total deposits for the second quarter ended September stood at ₹66,130 crore. What is significant is that the bank claims 50% of its customers are exclusive to them.

It is this loyalty and customer connect that Ghosh wants to cultivate further in order to fuel the bank’s next phase of growth.

A challenge that is staring Bandhan right in the face is that it is still focussed on microfinance. Today, about 62% of the bank’s loan book is microfinance loans. Ghosh is aware of this, and knows that in order to grow, the bank needs to diversify, or risk being pigeonholed. “We want to be the primary bank of our customers, serving all their banking needs right from housing loans and personal loans to gold loans. This will also help us diversify from our concentration in microcredit,” he says, adding that Bandhan needs to be “a universal bank”. And, Ghosh has already laid the groundwork for it.

Image : Graphics by Rahul Sharma

At present, Bandhan has close to 3,500 branches that serve only microfinance loans to women. The bank is now redesigning those branches to accept deposits and provide other services. It is setting them up in a way that within a radius of 2-3 km it can target potential customers who do not have access to banking services. These people might not be regular customers, but have the need for other consumer loans and deposits. To explain, Ghosh did some quick math. “If one branch can generate deposits of at least ₹1 crore, then we can generate about ₹3,500 crore of deposits without incurring any major cost of setting up new branches.” Typically it would cost about ₹50,000-₹60,000 per branch to upgrade the existing infrastructure. The bank has started the pilot run in December, and will roll out this plan in phases.

“Bandhan has a universal banking licence and it is right to diversify away from the volatile microfinance (MFI) sector. The bank has unveiled a five-year strategy where the share of MFI will be 30% of the expanded book. MFI will remain one of the dominant portfolios, but not the only one,” says Anand Dama, head-BFSI, Emkay Global Financial Services.

Ghosh did share his business plan with Fortune India. The intention, he says, is to create the next customer for other banking services and loans from its current base of microfinance borrowers. In September, the bank rechristened its largest portfolio as the emerging entrepreneurs business (EEB) vertical, that would serve underbanked entrepreneurs in rural and semi-urban markets, besides the usual microfinance borrowers. EEB has two broad categories: microcredit, where borrowers are part of a group and make weekly repayments; the second bracket is individual loans. These are given to those who run bigger businesses, and whose monthly household income is higher.

Bandhan Bank built its reputation first as a microfinance institution.
Bandhan Bank built its reputation first as a microfinance institution.
Image : Bandhan Bank

Over the last few years, the microfinance model has been moving away from group- to individual borrowing as loan ticket sizes inch up. “Traditional group guarantees don’t work anymore in the practical world, so this shift makes sense,” says Dama. This will help the bank cultivate its existing microfinance customer base to build a diversified loan portfolio, thereby mitigating the usual high risks associated with microcredit.

Bandhan is also focussing on building a robust technology backend to connect better with customers. It has launched digital accounts, and has also introduced a software that helps with credit decisions based on analytics and A.I. Ghosh has also made two key hires to drive the new initiatives. In September, Kumar Ashish was appointed executive president and head of the EEB vertical. Ashish—who has spent two decades at ICICI Bank—was group director at Airtel Money in Africa, prior to joining the bank. Bandhan also roped in former Bajaj Capital CEO Rahul Parikh as the bank’s chief marketing and digital officer.

Another key element was the acquisition of Gruh Finance, an affordable housing and rural finance company that Bandhan bought from HDFC last year. Ghosh is confident that affordable housing will be a key growth driver for the bank after microfinance. “It has similar potential like microcredit for us,” he says. Analysts expect “rich dividends” in the long term from Gruh Finance. The bank aims to offer housing loan services across 500 branches by the end of the current financial year.

“The first five years were all about developing the business; the next will be about growth,” says Ghosh. He is clearly bullish about what’s next. Reason: In a country of more than 1.3 billion, over 65% of the population live in rural India and are excluded from the financial services domain. According to the World Bank, India has the second largest unbanked population in the world at 190 million, after China.

Image : Graphics by Rahul Sharma

Abhijit Ray, co-founder and managing director, Unitus Capital, a financial advisory firm, says Ghosh looks at models which are workable and efficient. “Today, Bandhan has a better repayment rate than others because of its credibility and the connect it has at the grassroots level. There is a lot of respect with which the customers are handled not only by the field officers, but all the way up to the head of operations,” he says.

This approach has served Bandhan well. It has a low level of default, and its net non-performing assets are low as well. Although the pandemic hit the bank’s profitability in the September 2020 quarter, its total additional provisions on the books are at ₹2,096 crore, one of the highest buffers amongst private-sector banks.

Ray, who has known Ghosh for over two decades, says he is very client- and staff-centric. “Ghosh is a phone call away from his staff. He has built a culture where any problem in the field is reported immediately to him. He has ingrained the culture that field service is the most important part of the business. Sitting at the head office you can only do certain [types of] work, but if you don’t have ears on the field then there is a problem,” says Ray.

Image : Graphics by Rahul Sharma

Ghosh’s early life has played a part in shaping who he is. Born in 1960 in Agartala, Tripura, into a family of refugees from Bangladesh who were driven out of Dhaka during the partition in 1947, his family’s only source of income was his father’s sweets shop. But despite the financial constraints, Ghosh’s father was determined to give him a good education. He eventually graduated with an M.Sc. in Statistics from the University of Dhaka.

Ghosh started his career as a field officer with BRAC, an international development organisation in Bangladesh. In 1990, he moved to India and worked with multiple NGOs in West Bengal. In 2001, he set up Bandhan as a microfinance institution.

One could argue that Ghosh’s experience in serving the mass market has become Bandhan’s key strength. Goldman Sachs, in a recent report, says that the bank’s growth drivers are sound in terms of building deposits and a robust liability franchise, and believes it is on a similar trajectory as HDFC Bank was in the first five years of its operations. However, Ghosh is aware that banking is a crowded market. Besides the large players, Bandhan, especially, has competition from IndusInd Bank which acquired Bharat Financial Inclusion Ltd (BFIL)—formerly SKS Microfinance, a major NBFC player—to ramp up its microfinance business. The merger gave BFIL’s 8.8 million microfinance customers access to all banking services and products.

But Ghosh knows how to play to his strengths. “I cannot compete with SBI or HDFC Bank in terms of size and scale, but I can compete with them with my service, especially in the rural markets where I have an advantage,” he says. That can only bode well for what’s coming next for Bandhan Bank.

(This story appeared in Fortune India's January 2021 issue).

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