Differentiated banking will make its debut in India with microfinance player Bandhan Financial Services (BFS) winning an in-principle approval to set up a bank. Infrastructure lender IDFC is the other aspirant to have made the cut, the Reserve Bank of India (RBI) said in a release on Wednesday. The central bank will hold consultations with the government on awarding a banking licence to India Post.
By selecting just two candidates this time around, the central bank would surely have left 23 others disappointed. They could, however, take heart from the fact that RBI governor Raghuram Rajan believes licences should be given more regularly or ‘on tap’ and can try their luck again.
While the need to further financial inclusion — a priority for the central bank — makes an MFI like Bandhan an obvious choice, IDFC’s skills as a specialised lender to the infrastructure space would have tilted the scales in its favour at a time when banks are struggling to recover loans to the sector. As Shikha Sharma, managing director & chief executive officer, Axis Bank, pointed out, “Infrastructure is critical for the country and we need strong and stable institutions to make the build-out happen.” Sharma welcomed the new entrants, saying, “It’s always good to have good competition.”
IDFC, for its part, doesn’t intend to limit its focus infrastructure. Rajiv Lall, chairman, confirmed to FE that IDFC was looking to be a universal bank and to lend across verticals. “We will need to build a branch network but we will not be lending only to infrastructure, we intend to explore other segments as well,” Lall said, ruling out an acquisition.
With more than adequate capital of R2,100 crore and no legacy issues in terms of either outdated technology or too large an employee base, Lall believes building the bank brick by brick is the way to go about it.
Chandra Shekhar Ghosh, chairman and managing director, Bandhan, told FE the MFI was ready to roll out a bank in 18 months, adding it had a head start given that 45% of its 2,000 branches were already in unbanked areas vis-a-vis the RBI’s requirement of 25%.
With a net worth of R1,100 crore, capital, Ghosh said, would not be an issue, adding the biggest challenging in transforming to a bank was the execution.
Bandhan depends heavily on bank funding, the reason for its high loan rates of around 23%. The reliance on