Bandhan building up capital base ahead of banking licence issue

Bandhan Financial Services is raising Rs.260 cr debt from two multinational investors to boost its capital base


Bandhan managing director Chandra Shekhar Ghosh said the microlender expects to receive both the investments by March. Photo: Indranil Bhoumik/Mint
Bandhan managing director Chandra Shekhar Ghosh said the microlender expects to receive both the investments by March. Photo: Indranil Bhoumik/Mint

Mumbai: Bandhan Financial Services Pvt. Ltd, India’s largest microlender by assets and one of the 25 contenders for new banking licences, is raising Rs.260 crore debt from two multinational investors to boost its capital base.

Bandhan, headquartered in Kolkata, last week signed an agreement with International Finance Corporation (IFC) for a Rs.160-crore seven-year sub-debt with a bullet repayment provision, and is in talks with a Geneva-based investor for another Rs.100 crore three-year debt, said managing director Chandra Shekhar Ghosh.

“We expect to receive both the investments by March. The idea is to leverage on this capital to expand our business,” Ghosh said.

Bandhan’s cost of borrowing on both these loans will be 14-15%. Under the bullet repayment option, it will repay the amount borrowed at the end of the tenure in a single instalment.

IFC is an existing investor in the microfinance institution (MFI) with a 10.93% stake.

MFIs lend small loans to tiny borrowers and primarily depend on commercial banks to raise resources. Such firms typically lend at 24-36% interest rates to borrowers. As on 15 February, Bandhan had a loan book of Rs.5,500 crore to about five million borrowers.

An advisory committee under former Reserve Bank of India (RBI) governor Bimal Jalan is scrutinizing applications for bank licences and is expected to make final recommendations to the central bank soon. RBI will then issue licences based on the recommendations.

Major business houses in the race for the licences include Reliance Capital Ltd, Bajaj Finserv Ltd, Aditya Birla Financial Services Group and L&T Finance Holdings Ltd.

This will be the third round of private sector banks in India. The previous time RBI granted entry to private banks was in 2003-04, when it issued licences to Kotak Mahindra Bank Ltd and Yes Bank Ltd.

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