Informist, Thursday, May 19, 2022

--Bandhan Bank MD: To graduate group loan borrowers to individual loans

--Need to change mindset that bk is microcredit lender

--To increase shr of non-microfin loans in total book

--Diversifying loan book to mitigate operational risks

--System in place to ramp up housing loans

By Bhakti Tambe and T. Bijoy Idicheriah

MUMBAI – With Bandhan Bank emerging from the business disruptions brought about by COVID-19, the focus has now turned to growth of its non-microfinance book. The aim, says Managing Director and Chief Executive Officer Chandra Shekhar Ghosh, is to reduce the overall share of microcredit in total assets to 26% by 2025. 

The bank has already brought down the proportion of unsecured microfinance loans to 47% at the end of March from 59% a year ago.

In an interview with Informist, Ghosh says Bandhan Bank, which began as a non-bank microfinance lender, has now graduated into a universal bank that does a lot more than just microcredit. Similarly, many of the customers who were once group microfinance customers are also graduating to micro businesses as individuals, as credit support has enabled them to expand operations. 

"It is a futuristic opportunity and in the future, some of them may become very big MSMEs," he says. 

Asked how the bank analyses the risks from these unsecured loans since many of them don't have formal track records, Ghosh said the bank weighs family risk, debt history at an individual and family level, and data from credit bureau, microcredit as well as non-microcredit, before giving a loan. 

Even as the Reserve Bank of India came out with its harmonisation guidelines for microfinance recently, Bandhan Bank has learnt from the pandemic and the Assam episode, and switched to these norms two years ago, Ghosh says. 

When quizzed about whether the bank was merely changing nomenclature by tagging some erstwhile microcredit borrowers to the individual category, even as risks on the book remained the same, he was vociferous in denying this was the intention. 

"So, it is not that because I have been graduating, I have taken the women from this group to individual. This is not right. This is totally process-driven. We totally assess the credit needs and then decided," Ghosh says. 

He pointed out that because Bandhan Bank started as a microfinance player, when a growing customer is migrated from the microcredit to the individual category, it is being misconstrued in this manner. He termed this a perception issue that needs to change and explained that if another bank or non-bank lender provides a loan to the same customer or takes over the loan, it wouldn't face such questions. Then, no one would have an issue with that individual's loan being tagged as an MSMEloan, not a microcredit loan. 

"If I give because my mandate has been microcredit, then it is seen as microcredit. If now the borrower has come to the individual loan level even then for me, it is seen as microcredit. We would like to change that mindset," he said. 

Bandhan Bank offers microcredit loans at a rate almost 300 basis points lower than other lenders, based on the ability to understand credit risk for these borrowers better, along with leveraging on lower cost of funds. Ghosh said banks with much lower cost of funds were still giving such loans at a higher cost, and this meant Bandhan Bank continued to have an edge despite rising competition. 

When it comes to the unsecured nature of its borrowers, Ghosh said the bank wasn't too worried as it had a long history with them and was confident that there was no credit risk. He was also hopeful that as many of these borrowers continue to grow their business, they would become secured borrowers. 

Bandhan Bank is also looking to diversify its loan book to mitigate operational risks associated with the microfinance portfolio based on the experience of lockdowns, which hit such small borrowers and debt collections.

The microfinance model requires weekly doorstep collection, which was impacted during the pandemic. It also remains susceptible to issues such as local politics, where group meetings of borrowers could become platforms that hurt credit culture and impact loan operations, Ghosh said. 

Asked if asset quality ratios would improve hereon, Ghosh said it was difficult to provide a projection since legacy bad loans were linked to the first and second waves of the pandemic and the subsequent lockdowns. However, he said that loans disbursed in 2021-22 (Apr-Mar) were of good quality and remained normal on its books, indicating steady improvement in overall asset quality.

DIVERSIFICATION

Bandhan Bank had acquired Housing Development Finance Corp's Gruh Finance in October 2019 with a view to diversify its loan book. 

Investors, however, felt the bank did not adequately leverage the merger to grow mortgage loans--the main source of credit growth during the pandemic. When asked about this, Ghosh said it takes time for the staff of the housing finance entity to get used to know-your-customer and compliance norms of a bank, as these are more stringent. 

Now, however, all things are in place and the bank has already seen the highest ever growth in the housing loan segment in Jan-Mar.

As on Mar 31, Bandhan Bank's housing assets stood at 43.4 bln rupees, up over twofold from a year ago. The lender is aiming for home loans to be at 30% of total assets by 2025, against 24% at the end of March.

Ghosh pointed out that while the merger culminated in October 2019, the pain of the pandemic began in early 2020 and so, two years were lost due to the COVID-19 impact. 

Additionally, he said microcredit and retail lending need a 'feet-on-the-street' approach, and can't be done with only a few people, which is the case with corporate lending. So, the journey on diversification will happen steadily and organically.

Ghosh is, however, clear that Bandhan Bank will not look to expedite this journey to diversification by buying portfolios of any non-microfinance entity. 

To meet the digital needs of customers, the bank plans to spend 10 bln rupees to overhaul its operations and move its data and systems into the bank, from an outsourced model earlier 

"We are doing an overhaul of entire IT, core banking change, the data lake operation, which can be used tomorrow for analytics, like the CRMs (customer relationship management), the LOS (loan origination system), the LMS (loan management system)," Ghosh says.

"So now, we have enough customers, enough history database, and we now want to own all of that, rather than having it as outsourced."

Edited by Maheswaran Parameswaran

Cogencis news is now Informist. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2022. All rights reserved.