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

Indian microfinance institution (MFI) Bandhan Financial Services Private Limited (Bandhan) reportedly plans to apply for a banking license after the Reserve Bank of India (RBI) finalizes its new guidelines for establishing new banks [1]. This move, which would open up deposit-taking opportunities for Bandhan, is intended to approximately double the number of people Bandhan serves to 6.5 million [2]. The recent equity investment by the World Bank Group’s International Finance Corporation (IFC) in Bandhan, which was covered last week by MicroCapital, has brought Bandhan’s net worth to INR 600 crore (USD 127 million), surpassing the INR 500 crore (USD 105 million) minimum capital requirement expected to be finalized by RBI for new banks [1,3].

Chandrashekhar Ghosh, chairman and managing director of Bandhan was quoted as having said,”We expect that IFC’s induction as equity investor would give the banking regulator the confidence to give us a bank licence.” The MFI plans to introduce two unnamed veteran bankers on its board to help in the transition [1].

Bandhan was established in 2002 and has since grown its network to approximately 1,550 branches. As of 2010, Bandhan reported to US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 614 million, a gross loan portfolio of USD 565 million, approximately 3.2 million borrowers, return on assets (ROA) of 5.32 percent and return on equity (ROE) of 41.1 percent.

By Kristha Abores, Research Associate

About Bandhan Financial Services: Bandhan Financial Services Private Limited is a microfinance institution (MFI) based in Kolkata, India, that was founded in 2002. As of 2011, it operates approximately 1,550 branches in 18 states in India. It offers microenterprise loans as well as loans for individuals to pay for health emergencies. As of 2010, Bandhan Financial Services reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 614 million, a gross loan portfolio of USD 565 million, approximately 3.2 million borrowers, return on assets (ROA) of 5.32 percent and return on equity (ROE) of 41.1 percent.

About International Finance Corporation: A member of the World Bank Group, the International Finance Corporation (IFC) offers loans, equity investments, advisory services and technical assistance to private companies with the intent of alleviating poverty and promoting open and competitive markets in developing countries. As of 2011, IFC has 182 member countries that drive its policies and approve disbursements. As of June 30, 2010, IFC reports net income of USD 1.75 billion, total assets of USD 61 billion, return on assets of 3.1 percent and total investment mobilization of USD 18.4 billion to 528 projects.

About Reserve Bank of India: 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 all microfinance institutions (MFIs) and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, 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:

[1] The Economic Times: “Bandhan Financial Services to apply for banking licence”, http://articles.economictimes.indiatimes.com/2011-09-06/news/30119094_1_banking-licence-bandhan-chairman-kolkata-based-micro-lender

[2] Newkerala.com: “Bandhan plans to be upgraded from NBFC to a full-fledged bank”, http://www.newkerala.com/news/2011/worldnews-61683.html

[3] VC Circle: “RBI Issues Draft Guidelines For New Banking Licence”, http://www.vccircle.com/500/news/rbi-issues-draft-guidelines-for-new-banking-licence

Microcapital.org article, September 15, 2011, “MICROCAPITAL BRIEF: Indian Microfinance Institution Bandhan Financial Services Raises $29m in Equity from International Finance Corporation (IFC), Arranged by Intellecap”, https://www.microcapital.org/microcapital-brief-indian-microfinance-institution-bandhan-financial-services-raises-29m-in-equity-from-international-finance-corporation-ifc-arranged-by-intellecap-2/

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

MicroCapital Universe Profile: International Finance Corporation (IFC), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=International+Finance+Corporation+%28IFC%29

MicroCapital Universe Profile: Reserve Bank of India (RBI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29

Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/

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