Launching the first full-fledged bank to start operations in the country in over a decade, finance minister Arun Jaitley said it would fund lakhs of small and medium entrepreneurs, help create jobs and act as a response to agrarian poverty.
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With the launch of Bandhan bank’s commercial banking services, 500 branches will begin functioning across India. “Bandhan Bank is the first to be off the block as new changes happen in the country’s finance and banking field”, Uday Kotak, executive VC and MD of Kotak Mahindra Bank, said on the eve of the inauguration.
The Kolkata-headquartered bank has two divisions-micro banking and general banking-and will offer complete retail financial solutions, including a variety of savings and loan schemes. When new entrants come into the picture, chances are that there will be aggressive competition to get small deposits in the rural areas.
Reiterating Prime Minister Narendra Modi’s statement that growth of India would not happen unless the eastern part of the country also grew, Mr Jaitley said, “Growth of eastern states is important for the growth of India”.
“With the cooperation between the Centre and the state, we will work together towards the advance growth rate which eventually enables us to bring prosperity”, Jaitley said.
He said private institutions like Bandhan Bank will fill the gap. With an adult population estimated to be close to 50 percent “unbanked”, Bandhan and its leadership have gained huge experience in developing a business model appropriate to the low-income customer segment, positioning it well for competing against new entrants.
Meanwhile, to meet the regulatory guidelines on capital to risk asset ratio (CRAR), the bank has raised a equity of ₹2,570 crore; as against the mandatory requirement of ₹500 crore. Multilateral financier global Finance Corporation and the Singapore government-backed GIC are expected to invest Rs5 billion collectively in Bandhan Bank soon, taking the net worth to Rs32 billion.
Of the Rs 1.80 lakh crore capital requirement estimated by the Finance Ministry, the government would be providing Rs 70,000 crore – Rs 25,000 crore each in current and next fiscal and Rs 10,000 crore each in 2017-18 and 2018-19. For term deposits, the maximum interest rate has been fixed at 8.5 % for one to three years, with an additional 0.5% for senior citizens.
Seventy one percent of the bank’s branches will be in rural India and at least 35 percent of the total branches will be in unbanked rural pockets. “However, give us some flexibility”, said Chandrashekhar Ghosh, managing director and CEO of Bandhan while seeking relaxations from the RBI.
State-wise, West Bengal has the maximum number of branches 220, followed by Bihar 67, Assam 60, Maharashtra 21, Uttar Pradesh and Tripura 20 each, and Jharkhand 15.
Arun Jaitley said, “The Mudra agency will slowly evolve as the Mudra Bank”.
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After India embraced economic liberalization following a severe balance of payment crisis, the Reserve Bank of India (RBI) opened the doors for a set of new banks in January 1993. “Besides manufacturing, they are also getting into services and are also becoming consumption-oriented rather than export-oriented”, he said.
