i nc lu s i ve f i nanc e i nd i a re port 2014
132
front of the MFI sector. Transformation into small banks,
according to MFIN, would help MFIs shed their nega-
tive image of ‘non-bank’, earn customer trust and build
viable businesses leveraging the opportunity to provide
deposit services, money transfer services and micro
insurance
16
. As per MFIN ‘half of its members could
graduate to become banks’.
Sriram (2014), however, points out that the draft
guidelines for establishing ‘small banks’ would have
greatly benefitted from a review of the experience of local
area banks (LAB). Only one LAB could achieve the target
of Rs. 25 crore capital (they started with Rs. 5 crore)
within the timeframe of 5–7 years that was provided. A
review of the LAB experience shows that diversification
of shareholding within a 3–12 year period is impossible
to achieve.
Mahajan (2014), while welcoming the RBI initiative,
pointed out that unless certain ‘improvements’ are made
the guidelines MFIs would find it difficult apply for Small
Bank license. Most importantly, the guidelines limit the
scope of operation of small banks to contiguous districts
in a homogenous cluster of states/UTs. In India most of
the MFIs have non-contiguous multi-state operations,
who will either be ineligible for the license or will have to
procure license only for a small part of their operations.
He hence suggests dropping of the contiguity condition
and insisting instead on a 3:1 ratio of financially excluded
and other districts. Further, if small banks are allowed to
deploy half their assets in loans and advances of any size
(while the other half in loans below Rs. 25 lakh), they
would soon be banks for the local elite. He hence argues
for appropriate sub-limits to make sure that the small
banks cater to diverse constituencies in need of financial
services. These concerns and suggestions were shared by
several others.
17
5.5 RIGHT TO INCLUSION AND
SUITABLE SERVICES
One of the key consequences of the global financial
crisis of the last decade is that the financial services
industry the world over has come to place greater policy
B
OX
5.4
Why Bandhan Bank? Excerpts of Interview with C.S. Ghosh, CMD
15
‘We started thinking of setting up a bank in 2009. When we started the microfinance services, there was a need of such services. Just
before the AP crisis and before or during the time of SKS IPO, a lot of negative noise was created in the media. We have always been
uncertain whether our borrowers will have to go back to money lenders once we stop lending. What is the alternative? How can
we ensure that the poor get financial banking services on a sustained basis? RBI has been pushing the BC model and other models
which are not working well. Our model is financially viable. Many people suggested that the only way out is to become a bank.
In March 2010 came the parliament decision to allow RBI to issue new banking licenses to private players including NBFCs.
We started from there. From that day onwards we have started preparing the systems and people. We recruited a few bankers to
help us build a system similar to banks. We also went in for equity at that time. Several investors were interested in Bandhan. We
chose IFC considering the value that association will create for Bandhan.
We finally got the banking license. Our main objective is to serve the poorer people. A major concern is how we can slash
interest rates. It is possible only if the source of fund is cheaper as two-thirds of the cost goes to the bank for borrowing money. One
third is cost of operation, out of which two-thirds, cost of human resources (HR) which cannot be cut. You can only cut cost of
funds and not HR cost. Costs are low if we directly source finance rather than through banks or other intermediaries. As per RBI
rules you can take deposit only if you are a bank. This is the other major reason why we want to become a bank.
The objective is not to leave the existing customers. We would like to grow in this segment along with others. Micro enterprise
borrowers can graduate to MSME borrowers only if we support them. As per the microfinance regulations, there are several
constraints to offer loans to MSMEs. India has 28 million MSMEs out of which 26.2 million are unregistered and not getting any
bank loans. Who will serve them? As a bank we can serve them.
But again the challenge is on the deposit part. Poor people will have poor deposits. If we do not serve large segments, our
deposits will not be large which will push our cost of funds up again. Hence as a bank we have decided to serve every citizen of the
country. But we will continue to serve the micro clients. All such clients will be converted into individual bank customers from
day one.’
Source
: Personal interview on 25 June 2014, Kolkata.
