The competition in the banking sector is all about services, Chandra Shekhar Ghosh, Managing Director and Chief Executive Officer of Bandhan Bank, said in an exclusive interview with Moneycontrol's Beena Parmar.
Since starting operations in August 2015, the Kolkata-headquartered lender has garnered a record deposit base of Rs 20,000 crore and a similar amount in its loan portfolio.
With a mission to create a bond with customers as the bank’s name suggests, Ghosh wants to focus on services and personalised, simplified banking. He sees credit growth as a major challenge and wants to steer clear from corporate lending while focusing on micro, small and medium enterprises.
Below are the excerpts from the interview, where Ghosh used the analogy of a mother and daughter’s fashion choices to describe the debate on digital banking:
Q: Bandhan is set to complete 18 months as a bank. How has the experience been so far?
A: Earlier, we were a microfinance institution providing credit services to the bottom of the pyramid, specifically to women. Since August 23, 2015, we have been serving other customers as well with banking services including credit, savings, recurring deposit, insurance etc.
We want to provide more services to those who still do not have bank accounts as well as those who are not actively using banking services despite having an account.
We now have 803 branches and 280 ATMs across 33 states and Union Territories. We also have 2,427 microcredit offices, which are the doorstep services now offered to our bank customers.
We have nearly 1 crore customers in all and about 2 crore accounts across products. We have received a good response for customers and we open 9,000 accounts every day. Our employee strength has grown to 23,000 (from 19,500).
A major achievement is that we have garnered total deposits worth Rs 20,000 crore and generated 30 percent CASA (current and savings account), which is a record in the banking industry. Retail deposits [less than Rs 1 crore] account for more than 67 percent.
Before starting the bank, all the consultants said we could gather deposits worth around Rs 3,500 crore in the first year and then Rs 10,000 crore in three years. But in just one year, we received deposits worth Rs 12,000 crore.
Our credit book has also grown to about Rs 20,000 crore, of which 91 percent are micro loans (less than Rs 1 lakh). This includes MSME and SEL Small Enterprise Loans ranging from Rs 1 lakh to Rs 10 lakh which are given to startups, small enterprises, loan against property, housing loans, two-wheelers, and commercial vehicle loans, among others.
Q: Do you wish to enter the unsecured segment with personal loans or credit cards?
A: We introduced personal loans through a small book of Rs 100 crore loans with 100 percent repayments. We are learning from our previous experience that people like to use simple products. We are not planning credit cards right now. Tie-ups with different entities where customers can benefit by using our debit cards would be a better initiative. It might take time for our customers to adapt and feel the need for credit cards.
Q: You have grown your deposits base now. Do you plan to tweak your rates further?
A: Currently, we are offering 4.25 percent [interest] on savings accounts up to Rs 1 lakh, and 6 percent on savings more than Rs 1 lakh. Many banks are now offering higher rates as well. But I think that if we offer a higher [interest rate] than this, then my customers will not lock their money into fixed deposits, which have a higher interest rate and stable for us.
Q: How do you view competition from upcoming banks, especially small finance banks, given their microfinance background?
A: Our customer base is much higher now and so we are well-established. Also, given that there are over 86 banks already in the country and a Bandhan Bank can open 800 more branches and garner Rs 20,000 crore deposits, it shows there is lot of untapped market.
The competition is not with banks but with the quality of services. Also, we are the first private bank to have 68 percent share in rural areas. And we know that the services offered by private banks services are quite different. So, the opportunity is more and competition is less. As for customers, they want to get more access and personalised services from banks.
Q: Do you mean that physical banking is still in demand and digital banking is far away?
It is human nature for us to know our banker and have a personalised touch in banking, irrespective of digital banking. In case of doubts (other than deposit and withdrawal), we often need help and want the trust factor. So, getting banking business from customers will depend on the service, how you simplify it and how you provide a personalised touch to the customers.
Q: How do you plan to expand from a regional bank to a national bank?
A: We are a fully nationalised bank. As a microfinance institution, we served in 22 states, with higher penetration in the east as compared to the west and south. Now, we have expanded. We have over 40 branches in Uttar Pradesh, 80 branches in Bihar and 45 branches in Maharashtra already. As an MFI, we were not present in South. Now, we have 30 branches in the South with 10 branches in Karnataka. So we are growing. We are getting good deposits even from Gandhinagar in Gujarat and have about Rs 500 crore deposits in the Connaught Place branch in New Delhi alone.
Q: You are primarily a retail bank and don’t have much of a corporate client base. Do you want to expand to the corporate segment?
A: We have the expertise in retail and would like to continue there. Second, most banks in India have tapped the top 10 percent of large corporate customers and we have seen the NPA (non-performing assets) situation, so why should I go there right now. We want to target the space which is above microcredit but just below the large corporates; focus on smaller corporate as well as on affordable housing, which also has a social impact.
Q: But the MSME segment has also seen a lot of non-performing assets (NPA) for the banks.
A: You are right. Not only in India but globally, the MSME space has seen NPAs. The traditional way of banking is that banks are all lending on the basis of paper (documentation) to save themselves. That is not the way to lend. We want to analyse cash flows, the person borrowing, his/her intention to grow and build business - that should be given more weight and can help reduce NPA.
If you see our microcredit borrowers, their repayment record is 100 percent without any papers, primarily because we give a personalised touch and they have real needs for survival and not lifestyle needs. Hence, they have a genuine intention to make repayments.
Our definition for MSME is also different as it is Rs 1 lakh to Rs 1 crore, up to Rs 5 crore. Hence, the usage of money is for different reasons. There is enough space just above the bottom of the pyramid and we are comfortable lending to those customers.
Q: Digital is currently trending in the banking sector. You have also spoken about technology being an important factor when you started the bank. What is your view on digital and new-age banking?
A: [The digital banking debate] is like when a mother still prefers the saree while the daughter likes the T-shirt; there is a debate on which is more comfortable. But banking in India is still relying a lot on a personalised touch. Physical branches will be required for at least another 10-20 years in India.
However, basic digital transaction is the need of the hour for people. To make payments on loan instalments, fees, and money transfers, they require internet or mobile banking. Currently, only the high net worth individuals or highly educated are using this. Around 66 percent of our micro credit borrowers need to be taught to make payments online. The next generation will be more passionate about using digital banking, but it will take time. Meanwhile, we are installing more POS (point of sale) terminals and getting UPI (Unified Payments Interface) facilities.
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