In 1991, the P.V. Narasimha Rao government liberalised the economy and announced reforms aimed at trade liberalisation, fast-tracking economic growth, increasing investments and shoring up forex reserves.

With India still some years from reaping benefits of the tectonic shift in economic policy, a man in his early 30s, almost 1,500 kilometres from power galleries of New Delhi, was closely observing the plight of small traders. They had no funding options other than traditional money lenders charging exorbitantly high rates, pushing them into debt and penury.

Around the same time in Kolkata, Chandra Shekhar Ghosh’s desire to help small traders with institutional finance set the foundation for Bandhan, which took institutional shape as a not-for-profit society in 2001. Its core was financial inclusion and women empowerment through microfinance in rural Bengal. In 2006, it acquired a non-banking finance company (NBFC) and established Bandhan Financial Services Pvt. Ltd.

What started as a society and later became an NBFC has, since 2015, transformed itself into a universal bank with 4,000 outlets as of 2020. Ghosh is now MD and CEO of Bandhan Bank, the first microfinance company in the country to get a universal banking licence. Bandhan has emerged as the best bank on operating cost efficiency in Fortune India-Grant Thornton Bharat Best Bank rankings. Its operating expense to net income ratio was 29.1% in FY2021 and 32.1% in first nine months of FY22, which is the best among scheduled commercial banks. One big reason for lower cost structure is its history as a microfinance institution. Ghosh says the bank has been cost-conscious since its inception. “Our geographical and demographical diversity provides us an edge in containing costs. The bank’s robust operations and continuous endeavour in optimum utilisation of existing resources coupled with emphasis on managing overall expense have always kept our bank operationally strong,” he says. It may, however, be noted that while operating profit margins moved from 47.2% in nine months of FY2021 to 46.3% in nine months of FY2022, net profit margin fell from 19% to -15% due to higher provisioning.

The bank reported a loss of ₹3,008 crore in second quarter of FY2022 compared with ₹920 crore net profit in corresponding quarter of the previous fiscal due to manifold increase in provisioning for bad loans. The bank’s provisioning was ₹5,578 crore in second quarter of FY2022 compared with ₹380 crore in same quarter a year ago. Net profit was ₹859 crore in December quarter of FY2022.

Gross non-performing assets rose from 6.8% in Q4FY2021 to 10.81% in Q3FY2022. Ghosh, however, expressed confidence after release of business update for March quarter. He said he expects improvement in asset quality with economic recovery. He believes NPAs are coming down and the bank will be able to write back some provisioning due to recovery. Loans and advances, at ₹1,01,359 crore as on March 31, 2022, were up 16%. The bank’s collection efficiency ratio stood at 96% in March 2022 compared with 93% in December 2021. Collection efficiency in the emerging entrepreneurs business went up to 95% in Q4FY2022 from 91% in December quarter. Deposits rose 24% to ₹96,331 crore as on March 31.

Ghosh publicly contends that he is neither an economist nor a banker but learns from customers. From humble beginnings as a non-profit organisation, it has been a long journey for Bandhan Bank. With renewed focus on financial inclusion, grass-root level entrepreneurship, start-up ecosystem spreading wings beyond big cities and overall economy on the path of revival, credit demand is likely to grow by leaps and bounds. This bodes well for Bandhan Bank.

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