Band­han Work­ing on Many Strate­gies to Bring Down Pro­moter Share­hold­ing

The Economic Times - - Money -

Band­han Bank man­ag­ing di­rec­tor Chan­dra Shekhar Ghosh is look­ing at “all op­tions”, in­clud­ing merg­ers and ac­qui­si­tions, and di­ver­si­fi­ca­tion into other lines of fi­nan­cial ser­vice, to di­lute pro­moter share­hold­ing. In an in­ter­view with Shilpy Sinha, Ghosh talks about the Band­han Bank-Gruh Finance merger deal, op­por­tu­ni­ties in af­ford­able hous­ing, and the MSME seg­ment. Edited ex­cerpts… When I de­cided to ap­ply for a bank li­cence, no­body be­lieved me. I saw the po­ten­tial, saw huge op­por­tu­nity in af­ford­able hous­ing and in MSMEs. There is need for 20 mil­lion houses, when only around 8 lakh have been built. There is need for ₹ 2 lakh crore for af­ford­able hous­ing till 2022. Our cus­tomers are with us for 7-8 years. We can in­tro­duce af­ford­able hous­ing prod­ucts to them. We can also look at of­fer­ing MSME loans to Gruh cus­tomers. There are good op­por­tu­ni­ties. We have sta­ble de­posit growth, and last quar­ter our de­posit growth was 37%.

Was there a kind of com­pro­mise on This merger has helped us di­lute 21% pro­moter share­hold­ing. We first dis­cussed Gruh three years ago. It was a choice be­tween ac­quir­ing a listed en­tity and get­ting au­to­matic list­ing, or list­ing the bank first and then look­ing for an ac­qui­si­tion. We were fo­cus­ing on sta­bil­is­ing de­posits.

How do you plan to fur­ther re­duce pro­moter share­hold­ing to 40%?

We have a good strate­gic plan, and we will be work­ing on it. We do not know how long the reg­u­la­tors will take. Any merger process takes any­thing be­tween 9 and 12 months. There could be three strate­gies -- first, merg­ers or ac­qui­si­tions; sec­ond, form a sub­sidiary un­der NOHFC -- use money for other busi­nesses; and third, raise more eq­uity. Un­til it is fi­nalised, we can­not give a spe­cific strat­egy. My cost of funds to­day is 6.3%. If you add 30 ba­sis points for SLR and CRR, the cost of funds will only be 6.6%. This is not higher than Gruh’s 8.5% cost of bor­row­ing. Last year, our third-quar­ter profit was Rs 300 crore and this year it is Rs 331 crore. If you take out the IL&FS ex­po­sure of Rs 385 crore, our profit would have been up 93%. We have got CASA of over 50% and re­tail de­posit of 84%. Our fo­cus is on re­tail de­posit and credit. Our net NPA is 0.7% af­ter pro­vi­sion. Credit qual­ity has sta­bilised and 87% of our loan is mi­cro credit, which has seen 1% in­crease over the pre­vi­ous quar­ter. We have seen one-time re­pay­ment of 99.04%, which means the port­fo­lio is sta­ble. This had come down dur­ing de­mon­eti­sa­tion.

Your credit has grown when MFIs faced credit crunch and saw a de­cline in AUM for the first time since de­mon­eti­sa­tion. Did you ben­e­fit from the cri­sis?

72% of our cus­tomers are sin­gle bor­row­ers and have stayed with us for seven years. The re­ten­tion of cus­tomers is cru­cial to our model. This year, we have opened 381 mi­cro­cre­dit of­fices as we like to reach out to new cus­tomers. We also fo­cus on how em­ployee at­tri­tion will come down.

Your NPAs are sta­ble. Do you ex­pect any change in re­pay­ment habit af­ter loan waivers were an­nounced in three states?

The clear ben­e­fi­ciary of agri­cul­ture loan waiver is not the mi­cro-credit bor­rower. It takes a long time to build a habit of loan re­pay­ment. The bor­row­ers are now ma­tur­ing be­cause they have seen that they have not ben­e­fit­ted from a few in­ci­dents in the past.

Gruh and Band­han are very dif­fer­ent or­gan­i­sa­tions, cul­tur­ally. How do you plan to en­sure the shift and what will be the key to the suc­cess of this merger?

Gruh has a long as­so­ci­a­tion with its peo­ple, so do we. We are very fo­cused on cost, so are they. Only dif­fer­ence is prod­uct -- they have long- term and we have shorter-term prod­ucts. But I think that the best merger hap­pens af­ter mar­riage.

There’s a view that Band­han doesn’t de­rive much in terms of busi­ness gains from ac­quir­ing Gruh, but it just helps in re­duc­ing the pro­moter stake. Do you agree? busi­ness rea­sons to meet the reg­u­la­tory needs? Con­sid­er­ing the drag of CRR and SLR, there is hardly any bor­row­ing cost ad­van­tage for Gruh. In fact, the cost of bor­row­ing could only go up. How does it af­fect the fi­nan­cial met­rics? Your quar­terly profit is muted com­pared with the pre­vi­ous quar­ters. Is it be­cause of IL&FS ex­po­sure?

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