Shifting from a narrow road to a highway – that is the future for Bandhan Bank:
Bandhan Bank has been going through a difficult period. It was under pressure as it has largely been operating in the microfinance space and with an infrastructure that consisted of a network of around 6300 banking outlets catering to some 34 million customers across 35 states and union territories. In fact, microfinance lending constituted nearly 33% of its loan portfolio. Its NPAs had soared, warranting regulatory scrutiny. There were several disappointing quarterly results. In addition, it had encountered what analysts call geographic concentration risk as a major portion of its loans were in West Bengal and Assam and these regions had a fair amount of natural calamities. Further, Bandhan Bank faced competition from small finance banks. Even traditional banks gave it a tough time as they into microfinance.
Adding to these challenges was the decision of the bank’s founder and MD & CEO Chandra Shekhar Ghosh to demit office in July this year and the appointment of an interim CEO – Ratan Kumar Kesh – who was one of the EDs of the bank – to temporarily hold fort.
A COMEBACK
This scenario seems to have suddenly changed and now analysts are looking at the bank with a renewed vigour, for there is a positive step from the RBI. It has given approved the appointment of Partha Pratim Sengupta as the MD & CEO of the bank for 3 years to succeed Chandra Shekhar Ghosh, thereby ending an impasse. A banking veteran having experience in almost all segments of the industry, he was a DMD and Chief Credit Officer in SBI and also MD & CEO of Indian Overseas Bank. He will be taking charge in early November.
With nearly 4 decades of experience, Sengupta has worked across various geographies in both retail and corporate banking. During his tenures at SBI and IOB, he is acknowledged for using technology and innovation to drive business results. His appointment is the last step in the management transition of the bank, which had earlier appointed 2 EDs ad a CFO.
MEETING CHALLENGES
The bank is now poised tackle the key challenges it faces, like portfolio diversification, improvement in asset quality and expansion. The new management team will also need to aim to improve the bank’s financial stability, asset liability, concentration risk, risk management practice and digital transformation. The bank has recently gone on record stating that it aimed to have a strategic shift towards secured loans and targeted an 18% growth in advances.
Bandhan Bank is now in its 10th year of operation after it was converted into a universal bank from a microfinance institution. During this period, it was able to reduce the share of the micro-loan book, yet these loans still account for nearly 50% of its total loans. Some believe this focus on microfinance was because it was the preferred area of operation for long years for Chandra Shekhar Ghosh. It is now for Sengupta to bring in the required business transformation, essentially lowering the share of the micro-loans and increasing the share of secured loans. In doing so, it also needs to have healthy margins and return on assets.
The bank has another major challenge to face – human resources. It has some 78,000 employees, more than 60% of them in the microfinance business. Naturally, these employees are not highly skilled and when the microfinance portfolio is scaled down, there can be issues relating to their reskilling and upskilling.
In spite of these handicaps, the bank has a fairly decent capital adequacy ratio of 15% and had a 22.8% yoy growth in deposit mobilization. A majority of its banking outlets, which are now microfinance-focused, can be easily converted into full bank branches.
18% GROWTH
In spite of the hiccups, Bandhan Bank is optimistic that it will continue to grow at 18% per annum. The bank’s CFO, Rajeev Mantri, says the bank will be working towards a growth of between 10% and 12% in the emerging entrepreneurs business (EEB).
The bank now has plans to introduce products for the affluent like priority cards and lounge access, besides salary accounts. It is also planning to enter transaction banking space, which can earn fee income.
The bank has recently set up a data analytics team, a recovery team to focus on SMA (special mention account, that shows signs of stress) borrowers and has evolved a comprehensive strategy to optimize risk management with customer-centric growth.
TECHNOLOGY OVERHAUL
The bank has in early in 2024, completed a successful overhaul of its CBS and an expansion of its digital services using a strategic collaboration with Oracle. Using Oracle FLEXCUBE and Oracle Banking Digital Experience, it just not modernized its operations in retail and wholesale banking spheres, it also introduced Oracle Payments, Retail Loan Originations and services for retail internet and mobile banking.
Oracle systems have replaced almost all legacy systems and manual processes. Oracle FLEXCUBE’s scalable and flexible platform and Oracle’s digital banking services have enhanced operational efficiency and elevated customer experiences.
The new platform has enabled the bank to streamline its general banking, housing finance and Emerging Enterprise Business (EEB) operations, offering end-to-end support for critical market functions like group loans, housing loans, personal and vehicle loans, payments and taxes. The platform has also helped it to launch corporate banking modules to support its domestic trade business. One significant outcome is that the bank is now able to process and disburse small business loans worth Rs3 billion a day. It takes just 3 days for the seamless completion of a loan application, its processing and final disbursement.
Going forward, a Bandhan Bank credit card is on the anvil as the technology platform is ready and available now.
The Leadership Transition
When Chandra Shekhar Ghosh ended his 9-year tenure in the bank on 10 July, he had said he is stepping down to take a broader strategic role at Bandhan Financial Holdings, the bank’s holding company. While there is no documented succession plan in the bank, it had appointed Ratan Kumar Kesh, who was ED & COO, as interim MD & CEO for 3 months. As ED, he was handling functions including technology, operations, customer experience, transformation, internal audit, recovery and other support functions at the bank. He had joined the bank in March 2023 from Axis Bank, where he was heading the retail operations and services.
In June 2024, RBI appointed a director on the board of the bank, in view of its low performance. The appointee, Arun Kumar Singh, a CGM at the RBI, will be an additional director for a period of 1 year.
This article has been compiled based on publicly available information on the web, particularly the bank’s own website.
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