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AP Photo/ Bikas Das
Making it big.
THE MAKING

The story behind India’s biggest banking IPO began with rural women

By Nupur Anand

Unlike other players in the microfinance industry, Bandhan Bank joined the league of big banks only in August 2015. In less than three years, it has emerged as a leader and is set for India’s biggest banking initial public offering (IPO), at a time when its older and bigger peers are in duress.

On March 06, the Securities and Exchange Board of India (SEBI) gave a go-ahead for Bandhan Bank’s IPO, the draft papers for which were filed on Jan. 01. The lender must now list within three months.

Bandhan Bank is reportedly expected to dilute 10% of its stake, valuing the company at around Rs40,000 crore ($6.15 billion).

“So far Bandhan Bank has been doing fairly good, like most of the other private sector lenders, and there are no immediate signs of stress on the company’s balance sheet. Also, it has its fundamentals in place and has good growth prospects. Therefore, it will be interesting to watch out for its IPO,” said an analyst with a domestic brokerage house, requesting anonymity as the pricing and the valuation details are awaited.

In the July-September quarter of this financial year, the bank posted a net profit of Rs331 crore and its gross non-performing assets stood at 1.26% of its total loans.

Humble beginnings

Bandhan Bank began its journey among women in rural West Bengal.

Chandra Shekhar Ghosh, 58, founded Bandhan Financial Services in 2001 at a time when most established banks were wary about lending to small borrowers without credit history. Many such people had to turn to moneylenders who, in turn, wouldn’t lend without collateral, or charged exorbitant rates of interest.

Earlier, Ghosh had worked at Dhaka-based Building Resources Across Communities, an international non-profit organisation that works for women’s empowerment in Bangladesh, for over a decade. In 1998, he joined another micro-finance company, Village Welfare Society, in West Bengal. He soon realised that lending to small entrepreneurs can be a profitable business with a social cause. Later, he decided to transition into a bank to reach out to more customers.

“A single bank can lend only so much to a microfinance institution, but if we become a bank then my funding is unlimited. Small is beautiful but big is necessary,” Ghosh told The Mint newspaper in 2016.

Indeed, Ghosh’s own journey began from a small shop in the northeastern Indian state of Tripura.

Son of a sweet-meat vendor, Ghosh, in order to supplement his family’s income, began working even as he attended college. He pursued statistics at Dhaka University, Bangladesh.

With a corpus of just Rs2 lakh, most of it coming from a relative and the rest from a private lender, he established Bandhan in 2001, reaching out to women entrepreneurs.

The journey

A year on, Bandhan was able to secure bank funds and began expanding. In 2009, Bandhan was registered as a non-banking financial company providing select banking services.

In 2013, after a gap of over a decade, the Reserve Bank of India opened the counters for new banking licences. Bandhan Microfinance was among the 25 applicants, including conglomerates like the Birlas, L&T, Bajaj, and others, that made the cut. In April 2014, it was granted in-principle approval to start a bank.

The final licence was granted in June 2015 and Bandhan commenced operations two months later.

Since then, its network has expanded from 501 branches and 50 ATMs to 840 branches and 383 ATMs across the country as of September 2017. With a customer base of 11 million, it has managed to expand its loan book to Rs20,800 crore and has also mobilised Rs23,500 crore in deposits. Till September 2017, about 90% of the bank’s business was still made up of the small loans extended to small entrepreneurs.

In its IPO, Bandhan Bank will issue up to 97.6 million equity shares and an offer for sale of up to 21.56 million shares. The listing is in keeping with the RBI’s compliance norms that require the lender to join the exchanges within three years of starting operations. However, the funds raised from the proceeds will be used to augment the bank’s coffers. Ghosh declined to comment on the listing announcement.

Nevertheless, Bandhan Bank has proven that social causes can be good business, too.