'Bandhan should not fall for corporate banking'

'Bandhan CEO is not a messiah for the poor. Rather, he is an astute entrepreneur with a keen sense of finances.'

'Chandra Shekhar Ghosh understood that the business of microfinance is all about scaling up and doing it profitably.'

'India’s financial system needs Raghuram Rajan at the moment.'

I don’t consider Bandhan chief executive officer Chandra Shekhar Ghosh a messiah of the poor."

“Rather, he is an astute entrepreneur with a keen sense of finances,” said business journalist-cum-writer Tamal Bandyopadhyay, below, left, talking about his latest book, Bandhan: The Making of a Bank, which is being released in Mumbai on Monday evening.

This is the third book penned by him. His first book was A Bank for the Buck, on HDFC Bank. 

Bandyopadhyay’s second book, on Sahara (Sahara, The Untold Story) had drawn the group’s ire and the latter had moved court seeking Rs 200 crore (Rs 2 billion) as damages from the author.

Sahara India, however, reached an out-of-court settlement with Bandyopadhyay, allowing the book to hit the shelves with a clarification.

In a conversation with Indrani Roy/Rediff.com at Bandhan's headquarters in Kolkata, Bandyopadhyay explains why his third book is totally different from the earlier ones.

At the launch of Sahara, The Untold Story, you had said it was one of the most challenging books you have ever written. What about Bandhan: The Making of a Bank? How difficult was it as a project?

Sahara was an investigative book. There I took on a large conglomerate which is not known for its openness.

It was a big challenge.

There are a lot of mysteries surrounding the group.

And whatever I wrote needed to be substantiated with facts and figures.

It was a very, very difficult task.

In case of the book on Bandhan, however, I was writing about a territory, which unlike Sahara, was not entirely a virgin one.

There are many published works on microfinance companies across the globe.

In India, there is a book by SKS Microfinance founder Vikram Akula -- A Fistful of Rice: My Unexpected Quest to End Poverty Through Profitability.

In Bangladesh, too, lots have been written on microfinance companies and Muhammad Yunus’s Grameen Bank.

Yunus’s autobiography -- Banker To The Poor -- is a book to reckon with.

While studying the existing works on microfinance, I found that most of these books are either written by the protagonist himself or the protagonist is portrayed by the writers as a messiah for the poor, someone who is ushering a social change and uplifting the poor.

Moreover, there are other sets of books that are largely analytical and data driven.

While penning the book on Bandhan, I adopted a different approach.

I tried to depict a story of entrepreneurship.

To me, Chandra Shekhar Ghosh is not a messiah for the poor.

Rather, he is an astute entrepreneur with a keen sense of finances.

Ghosh, according to my understanding, is someone who could see a gap in the Indian financial system left by the inefficiency of the Indian banks.

In this book, I have discussed at length how Ghosh managed to strike a balance between doing good to the people and setting up a good, profitable business.

You are also associated with Bandhan Bank as a consultant in a senior capacity. How did you separate your role as an objective story-teller from someone on Bandhan’s payroll and hence biased?

(Smiles) That was a bigger challenge.

While writing this book, I followed a style that was totally different from the one that I took while writing the other two books -- A Bank for the Buck and Sahara, The Untold Story.

In case of the former, HDFC Bank lent every support and provided me the necessary entry into the details.

In Sahara’s case, too, the group was cooperative in the beginning though later it somersaulted and filed a suit against me.

For the book on Bandhan, I was telling a story of the birth of a bank and for that I needed a lot of data.

Being an insider, I had the advantage of accessing some necessary facts about the bank.

I had to travel extensively to get exposure to the bank’s daily functioning.

I was amused to know from a zonal manager that some woman in a remote village had actually put in real pins instead of typing the personal identification number into the automated teller machine to withdraw money.

An anecdote like this enriched my experience but, at the same time, as an insider I had to take utmost care to prevent my writing from getting biased.

As a passionate writer, I have tried to maintain full objectivity.

Now, it’s for the readers to find out how successful I have been.

Kaushik Basu, senior vice president and chief economist with the World Bank, has written the foreword after reading the book.

We had an arrangement with Basu -- he would not write the foreword if he were not convinced about my objectivity (smiles).

Former Reserve Bank of India Governor Duvvuri Subbarao, Securities and Exchange Board of India Chairman U K Sinha, former Comptroller and Auditor General of India Vinod Rai, Competition Commission of India chairperson Ashok Chawla, former president of Institute of Chartered Accountants of India Y H Malegam and chairman of HDFC Deepak Parekh have read the book and written their comments.

These are men of impeccable integrity and wisdom.

Words of encouragement from them give me the strength that I am on the right track.

And I don’t think I have compromised on my intellectual honesty.

Bandhan’s growth from a small lending unit to a bank is stuff dreams are made of and you have seen it from up close. What, according to you, has been the most fascinating aspect of its growth?

Ghosh, as I told you earlier, is a skilled entrepreneur.

He dared to go where the Indian banking system never ventured into.

Because of his humble background (his father, a refugee from Bangladesh, was a sweet shop owner), he could empathise with the poor.

The first 10 employees of Bandhan were recruited from that very stratum of the society that the microfinance organisation catered to.

That helped Bandhan to function efficiently.

Ghosh knows the business really well.

He understands that microfinance is all about monitoring.

It’s always advisable to give clients a little less than the loan amount that they are asking for.

Ghosh knows that the business of microfinance is all about scaling up and doing it profitably.

One can’t be dependent on grants for ever. For, then the flow of money will not be continuous.

I have met Bandhan borrowers who started with Rs 2,000-3,000 in 2002-03 and now they are borrowing as much as Rs 100,000-200,000.

Ghosh has taken risks, has maintained strict monitoring and has included into his team the right kind of people, who could empathise with the poor and understand their psyche.

What can other microfinance units that aspire to be banks learn from Bandhan’s experience? What should they avoid doing?

It’s all about doing business profitably and continuously upping the scale while understanding the need of the borrowers.

Bandhan’s strategy is very simple -- reach out, lend, charge some interest but don’t act like a Shylock.

Its sole aim is to help the low-income group people build capacity.

Whether it’s a vegetable vendor, rickshaw-puller or a fish-seller, one has to be with them, lend them money and monitor if the borrowed money is being used properly.

Bandhan's team meets its borrowers once a week. That creates a strong bond.

I have seen how Bandhan has become a way of life for the poor.

In rural areas, the moment one becomes a Bandhan borrower, one upgrades one’s social status and can marry one’s daughter off to a good family.

One needs to approach microfinance as a business and in the process help the people.

Microfinance organisations that want to succeed like Bandhan should avoid excessive greed.

They should also avoid falling a victim to idealism of doing good to the poor, thereby depending overtly on grants.

One needs to strike an effective balance between the two to taste success.

Bandhan has mastered this art.

What challenges does Bandhan face?

The book has one full chapter on Bandhan’s challenges.

Bandhan will continue to succeed if it does not deviate from its path.

It should stick to its core competence.

It should not fall for corporate banking.

For, then it would fail to compete with the existing players.

To draw an analogy from cricket, in Sabina Park, Kingston, Jamaica, you have to play against fast bowlers.

But in India on a pitch suitable to you, you have to play against spinners.

Corporate banking has its thrills.

If you are driving a sedan, you will find it lot more exciting to drive a sport utility vehicle.

But for Bandhan, it will be wise not to opt for the excitement of corporate banking.

It should take slow but steady steps -- with time it should start giving loans to micro and small enterprises, should plan giving small auto loans, home loans etc.

What is your opinion about the new banks of India? How solid is their foundation?

If you see the history of banking industry, only 13 new banks have come into existence post independence.

Not all of them survived. Four of them died or got merged with other banks.

In August 2015 came Bandhan, and in October 2015 IDFC was born.

After this, dramatic changes were observed in Reserve Bank of India's stance.

It gave licences to 10 small banks and 11 payments banks.

Of the latter, three surrendered their licences.

It’s very clear now that RBI is ready to take the challenge.

It’s looking for smaller banks.

A couple of banks may not succeed but that will not create any systemic issue.

With the Pradhan Mantri Jan Dhan Yojana striking the right chord with the people now and financial inclusion given a major leg up, the more banks we have, the better it is for the economy.

The problem of huge non-performing assets is plaguing the banking sector. How robust do you think the industry really is?

NPA is a huge problem.

There is more than what meets the eye.

Apart from the NPAs, one also needs to take into account loans that have been written off or restructured.

I have heard people saying that things are not as bad as they are projected.

It is said that in the mid-'90s, banks had even higher NPAs.

That’s not the right way of looking at the issue.

For, banks’ balance sheets are at a much risk now than what they were in the 1990s.

Banks’ cash reserve ratio and statutory liquidity ratio were much higher in the 1990s than they are at present.

Also, banks’ exposure to loans was much lower in the 1990s than that it is now.

But let’s not forget that the public sector banks are backed by the government, they will not be allowed to fail.

There might be some overhauling, consolidation and change in management but they will continue to function.

As for private sector banks, they are much better off financially.

As an expert on the banking sector, what do you think ails India’s public sector banks? Almost all the public sector banks posted dismal results this quarter. Is NPAs the only problem they face?

This is a deep-rooted problem.

The real cause probably lies in government playing a large role.

For, with government taking the lead, governance, constitution and quality of banking boards become major concerns.

Poor salary of banking officials too is a big constraint.

Then there are issues about infrastructure.

Shadow of vigilance too dogs the banks’ paths.

In recent times, when Kingfisher offered a compromise formula (to pay off 50 per cent of what the company actually owed), the banks could not take the offer.

I don’t know how genuine the Kingfisher offer was but the point I want to make is that the banks are constantly reeling under the fear of vigilance.

Also, banks cannot have differential pay structure for different strata of employees.

Therefore, I think the sector needs complete overhauling.

Government’s stakes in banks should be brought down below 51 per cent and should be privatised.

But that being too sensitive and political an issue, will take time to be implemented.

However, even without privatising, banks can pick the right kind of people, can pay them well, can award the deserving candidates, set up an efficient infrastructure, depoliticise the boards, focus on governance and the like.

Do you think the Reserve Bank of India has over the years abdicated its regulatory role and hence should be primarily blamed for India's banking mess?

I don’t think so.

I would rather give RBI the credit for taking the challenge facing the banking sector head on, for encouraging the banks to come clean on their financial health.

The RBI has also succeeded in bringing in healthy competition in the sector.

Shape up or ship out is RBI’s new mantra to the banks and that’s a very, very healthy approach.

Is RBI Governor Raghuram Rajan on the right track? He seems to be caught in a political crossfire. Do you think he should be granted an extension?

Yes, Raghuram Rajan should be given an extension.

Here is an RBI governor with a global branding.

He has done a great job in cleaning up the balance sheets, opening up the banking sector, lending stability to rupee, stocking up foreign exchange reserves and managing inflation to a large extent.

He has not been able to kill the demon of inflation in its totality but has been able to contain it to a large extent.

I don’t find any fault in him.

As for political comments against him, we should not read too much into them.

India’s financial system at the moment needs an RBI governor like Rajan.