Bandhan Financial Services, a microfinance institution (MFI) based in the Indian city of Kolkata, reportedly announced that it has reduced its lending rate by 50 basis points, or 0.5 percent, bringing its annual interest rate down to 22.4 percent. The new rate is only applicable to new disbursals. Bandhan reportedly was able to lower its lending rates as it can now borrow from banks at an annual rate of 12.1 percent, down from the 12.6-percent rate it was paying in 2013. In April 2014, the Reserve Bank of India (RBI), the country’s central bank, granted “in-principle” approval to Bandhan to acquire a banking license. Bandhan expects to further lower its interest rates in the future, as becoming a bank would allow it to accept and mobilize deposits. According to RBI policy, lending institutions must offer lower interest rates on loans when their financing costs decline.
Bandhan, which provides lending products to women, reports to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 860 million, a gross loan portfolio of USD 826 million and 5 million active borrowers as of December 2013. As of March 2013, it reported return on assets (ROA) of 6.4 percent and return on equity (ROE) of 37.6 percent.
By Juan Blanco, 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 2014, it operates approximately 2,000 branches in 22 states and union territories in India. It offers microenterprise loans as well as loans for health emergencies. As of December 2013, Bandhan reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 860 million, a gross loan portfolio of USD 826 million and 5 million active borrowers-all women. As of March 2013, it reported return on assets (ROA) of 6.4 percent and return on equity (ROE) of 37.6 percent. As of 2014, Bandhan is in the process of acquiring a banking license that would allow it to accept deposits.
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 (NBFCs). 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 0.5-percent stake in NABARD as of March 31, 2013. RBI reported total reserves of USD 263 billion as of February 14, 2014.
Sources and Additional Resources
 The Electronic Times, “Bandhan Financial Services Lowers Lending Rate by 50 bps,” by Atmadip Ray, http://economictimes.indiatimes.com/news/economy/indicators/bandhan-financial-services-lowers-lending-rate-by-50-bps/articleshow/34655101.cms
MicroCapital Story, April 14, 2014, “Reserve Bank of India (RBI) Grants Preliminary Approval to Microlender Bandhan to Receive Banking License,” https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-grants-preliminary-approval-to-microlender-bandhan-to-receive-banking-license/
MicroCapital Story, March 31, 2014, “Bandhan of India Raises $16m in Nonconvertible Debentures (NCDs) From Unnamed Swiss Investor,” https://www.microcapital.org/microcapital-brief-bandhan-of-india-raises-16m-in-nonconvertible-debentures-ncds-from-unnamed-swiss-investor/
MicroCapital Story, March 2, 2014, “Bandhan of India Borrows $26m From International Finance Corporation (IFC), Seeks $16m From Swiss Investor,” https://www.microcapital.org/microcapital-brief-bandhan-of-india-borrows-26m-from-international-finance-corporation-ifc-seeks-16m-from-swiss-investor/
MicroCapital Story, January 14, 2014, “Standard Chartered Bank Loans $12m to India’s Bandhan Financial Services for Microenterprise Lending,” https://www.microcapital.org/microcapital-brief-standard-chartered-bank-loans-12m-to-indias-bandhan-financial-services-for-microenterprise-lending/
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: Reserve Bank of India (RBI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29
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