Bandhan Bank’s flagship microfinance went through a lot of setbacks because of demonstration and the humbling experience with large corporate exposures, but they managed to overcome all the obstacles. The private lender now wants to focus on the home loan segment.
Bandhan Bank aims to grow it’s housing finance book 5 times in the next 5 years from Rs 20000 crore at present to Rs 100000 crore and occupy almost one-third of the Rs 3.5 lakh crore loan book that the bank has targeted. As of June, the overall loan book stood at Rs 74,000 crore, with more than 60 percent focus on the microloans.
Opportunities in Housing Finance segment
India’s home loan market is anticipated to grow at a brisk rate of around 22% from 2021 – 2026 on account of increasing urbanization and affordable mortgage rates. The housing loan rate is low in India when compared with developing economies, presenting opportunities for the growth of the home loan market in the country. Moreover, the government push towards affordable housing coupled with an acute shortage of housing is further expected to drive India home loan over the next five years.
Due to liquidity crunch, the housing finance sector growth has slowed down in the last year. Housing finance companies (HFC) lowered their disbursements and raised portfolio sale through securitization for repayment of debt obligations. In the last financial year, Bank’s retail home loan portfolio increased by 19 percent, on the other hand, HFCs grew by just9 percent, as banks seized the opportunity to expand in the retail home loan segment
The bank will continue with microlending after failed infra lender IL&FS
Ghosh, who has been heading Bandhan since its days as a microlender, termed the bank’s biggest setbacks — regulatory wrath for high promoter ownership and also the exposure to failed infra lender IL&FS – as “learnings”.
He said it is good that the failure on the large exposures happened very early into Bandhan Bank’s journey, which helped limit the losses, and affirmed that it will never lend to the large segment again.
On the promoter share front, where the RBI had put restrictions including on network expansion and capping Ghosh’s salary before fully withdrawing both, he said the setback helped the bank decide on “compliance” as the first priority.
Ghosh said the business has had cycles of good growth, which gets followed with some impact due to changes in the overall environment beyond the bank’s control and specifically mentioned demonetization and the current COVID-19 pandemic which led to a full wipeout in collections.
He defended the over-reliance on the eastern geography, which accounts for over 75 percent of the overall business at present, and added that while the business grows elsewhere, Bandhan will continue to grow in the east.
When asked about setbacks like repayments impact due to the anti-CAA protests over the last year, Ghosh said till date, not a single rupee of loan has been written off in Assam and the reverses it faced because of the protests are a part of the business.
With West Bengal heading to elections, he expressed confidence that there will not be a turn to populism which may lead anybody to not pay on their loans ahead of the crucial Assembly polls.
He said small borrowers prefer paying because they understand the importance of a commitment to repay and do not mind sharing the benefits of a growing business with the financier who helped make it possible.
After becoming a bank, its rate of lending has reduced to 17.95 percent from 22.4 percent earlier and will reduce further as the share of the low-cost deposits will grow, Ghosh said, admitting that in the beginning, getting people to deposit was a challenge because the whole system had been tuned as a model focusing on lending and not liabilities.
Ghosh said more than the rate of interest, a borrower is more concerned with the delivery of simple and timely credit for all.
Going ahead, its parent is also set to launch its insurance and asset management company businesses, Ghosh said, adding that the bank “may” turn its distribution partners.