Bandhan picks Deloitte to help in banking entry

Deloitte will assist the Kolkata-based microlender to chart out a road map to convert the entity into to a bank


In the recent weeks, Chandra Shekhar Ghosh-led Bandhan has been in discussions with a host of consulting firms such as KPMG India, Boston Consulting Group, McKinsey and EY India regarding the banking entry. Photo: Indranil Bhoumik/Mint
In the recent weeks, Chandra Shekhar Ghosh-led Bandhan has been in discussions with a host of consulting firms such as KPMG India, Boston Consulting Group, McKinsey and EY India regarding the banking entry. Photo: Indranil Bhoumik/Mint

Mumbai: Bandhan Financial Services Pvt. Ltd, one of the two entities that received in-principle approval from the Reserve Bank of India (RBI) to set up banks, has hired Deloitte Touche Tohmatsu India Pvt. Ltd to advise it on the banking entry.

Deloitte will assist the Kolkata-based microlender to chart out a road map to convert the entity into to a bank, said Chandra Shekhar Ghosh, founder and managing director of Bandhan.

In recent weeks, Bandhan has been in discussions with a host of consulting firms such as KPMG India, Boston Consulting Group, McKinsey and Co. and EY India.

In April, RBI granted in-principle bank licences to IDFC Ltd and Bandhan to start new banks from a list of 25 applicants. These included Reliance Capital Ltd, Bajaj Finserv Ltd, Aditya Birla Financial Services Group, L&T Finance Holdings Ltd, LIC Housing Finance Ltd, Muthoot Finance Ltd and India Post.

Bandhan is the largest microlender in India in terms of assets. As of 31 March, Bandhan had a loan book of Rs.6,200 crore and 5.4 million borrowers. The company has 13,000 employees and 2,016 branches operating in 22 states.

Bandhan, in which the World Bank arm International Finance Corp. has a stake of 10.93%, has a capital base of Rs.1,100 crore.

Bandhan has already set up a core team to work on the banking transition, Ghosh said.

“We already have a team of 30 people within the organization working on the transition. Deloitte will work with them,” Ghosh said.

Bandhan will transfer its existing microfinance operations to the new bank as RBI norms do not permit a group, which promotes a bank, to run financial service business within the group other than the bank, Ghosh said.

The microlender will use its existing talent pool for the new bank and would hire professionals from outside for specialized roles such as treasury and compliance functions in the bank, Ghosh said.

Bandhan is well positioned to become a bank focusing on the financial inclusion in the rural areas of the country, experts say.

“The fact that Bandhan has a presence in north-eastern districts is a plus point from a financial inclusion perspective,” said N.K. Thingalaya, a former chairman and managing director of Syndicate Bank and an expert on financial inclusion.

“Bandhan has an large existing client base and their staff knows about the local conditions. However, conversion of these strengths to a bank is a challenge,” said Thingalayya.

Thingalayya said most Indian private sector banks have opted to focus their operations only in the urban centres as it is more profitable for them compared with operating in rural segments.

The plan to issue new bank licences was first announced in February 2010 by the then finance minister Pranab Mukherjee in the Union budget. The last time RBI gave bank licences was 10 years ago—to Kotak Mahindra Bank Ltd and Yes Bank Ltd.

This time around, RBI issued the new licences to widen the reach of the Rs.84 trillion banking industry in an economy where, according to a 2012 World Bank document, only 35% of adults have access to formal banking services.

In the previous rounds, the idea of allowing new banks was to introduce competition in the banking sector, primarily dominated by government-owned banks.

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