GIC-Backed Microlender to Start First New India Bank in a Decade

Updated on

Bandhan Financial Services Pvt., a closely held Indian microfinance company, received the final permit to become a bank, making it the nation’s first new commercial lender in more than a decade.

The Kolkata-based company, which counts Singapore’s GIC Pte. and the International Finance Corp. among its investors, will start operations as a bank on Aug. 23, Chairman Chandra Shekhar Ghosh told reporters in Mumbai.

Bandhan is entering India’s mainstream banking industry as the regulator is seeking ways to clean up lenders’ books amid a surge in bad loans and a sputtering economy. Stressed assets are set to surge to the highest level since 2002 as four of India’s five biggest banks reported an increase in bad loans for the year ended March.

“At the moment, we want to establish a bank which is financially viable in the first two to three years,” Ghosh told reporters. “If we look at the condition of the economy, we are not keen on corporate loans.”

India has 27 state-run banks accounting for more than 70 percent of loans outstanding. The country’s 20 private lenders, led by ICICI Bank Ltd., held more than 19 percent of bank credit as of March 2013, while 43 foreign banks accounted for the rest, data provided by the RBI show.

As per the Reserve Bank of India guidelines for new banks, Bandhan will consider an initial public offering in three years, Ghosh said.

Bandhan’s current net interest margin of 10 percent may decline after starting the bank, he said. The microlender has about 17,000 workers, and will have as many as 600 branches with 10 million customers in India’s 27 states, he said.

With a net worth of 27 billion rupees ($421 million) and a loan book of about 100 billion rupees, its bad loans were 0.1 percent loans outstanding as of March 31, Ghosh said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE