Bandhan Bank's Chandra Shekhar Ghosh does not want to go quietly into the good night; says 'will play a strategic role'

You created a business model focussed on serving the unbanked and underserved, a market often perceived as risky by banks. Should this model be regulated and treated differently?

When an industry is new, flexibility is crucial to provide services to the people. However, as the industry scales, it requires more control, compliance, and governance. Otherwise, its future growth will be hindered. When I was managing an NGO or an NBFC, my customer base and reach were relatively limited. You cannot manage 30 million customers in a bank today in the same manner as I did with 5 million customers 10 years ago. Scaling up involves relying on a large number of people and layers. When you are small, you can be directly involved, but as you grow the business, it becomes essential to have well-established compliance and risk mitigation processes and systems in place. Without these, the business’ future growth will be impacted.

Is risk management the biggest learning experience for this kind of model under a banking platform?

Traditionally, microcredit customers are seen as high-risk because the loans are unsecured. However, over the past 20 years, it has been proven that these borrowers can repay [loans]. It’s the women borrowers themselves who have proven this, not me. They are not as risky as once thought of. They stay in their villages and continue to make payments or explain any difficulties they face. During and after the pandemic, even when faced with challenges, there was a willingness to repay. My senior team visited customers and found that with Bandhan’s support, their household needs were met. These customers attribute their progress to our support and ask only for time to repay their loans.

During the lockdown, when trains stopped running and shops closed, many hawkers and shop-owners lost their livelihoods. How could they do business under such conditions? It’s important to understand the ground reality rather than just calculate risk from a distance. Every industry goes through ups and downs but eventually returns to normalcy and prosperity. We have seen this in steel and the real estate sector. So, while risk is always present, understanding the reality and planning accordingly is crucial. Serving these people is essential; otherwise, the country itself is at risk.

Is the answer to diversify into secured loans?

Diversification is very important... there is no doubt about that. However, the point is that after all the crises (Covid-19, etc.), how many of these types of institutions have closed? None. This indicates that the model is very good... and caters to individuals that the traditional banking system fails to reach. In the world of microcredit, the Indian microcredit sector is more professional compared to any other country. Many countries visit us to observe our operational procedures… The industry has also received support from regulators, which provide guidance to the players periodically. There is also a credit bureau specifically for microcredit customers.

So, a lot of systems, processes, and compliance measures have been set up to mitigate risk. However, if we consider the highest risk faced by the industry in the recent past, it was the pandemic… We have seen this in our lifetimes, but maybe earlier generations had not. So, this is a one-time event. We have to accept that such an event will cause some damage. But within a short time, we recovered as a country. And the microcredit industry is bouncing back. If you observe, customers are returning to group meetings and making payments. Yes, there have been some losses.

Second, there is the issue of man-made crises, which should be controlled. For instance, the Andhra Pradesh and Assam crises were not caused by customers. This risk can be mitigated. We should not say that we will not work in that industry because of issues, or we will not serve those customers, or we will not work in some states. That would mean creating fear and closing our eyes to the issue. That would not help the country.

Don’t you think microfinance banking entities will eventually vacate this space as small finance banks are also allowed to convert into universal banks?

Each bank began with a specific segment. Some banks started their operations in the corporate sector, while others focussed on the retail market. It was natural for us to start as a microfinance business.

No bank began with a diversified product basket. Over time, banks gradually diversify into various product categories, such as secured, unsecured, micro, and non-micro [loans]. But you require time to diversify. If you have started with a single product and 2,000 outlets, you will need a little time to diversify. This is because, as a bank, we handle depositors’ money, and we also need to ensure that this money is safe.

For that reason, we are gradually diversifying into secured segments and also geographically… If there is a limitation or restriction on some entities to expand, then the risk is a bit higher. On the other hand, if any bank wants to diversify too quickly, that is also a risk. We have to find a balance from both the perspectives.

You have decided to retire as MD & CEO. Why not be a board member?

If you observe, each organisation (bank) follows a different approach. Bandhan Bank has a unique structure as given by the banking regulator; it operates under a holding company structure, unlike other banks. When you have a standalone bank structure, there aren’t as many opportunities [as at a holding company]. However, I have opportunities within the holding company where I can play a strategic role.

Do you think there is a greater need for your presence in the holding company now?

As MD & CEO, I can’t say anything... However, from an overall perspective, I do need some time to develop my entire group. So far, I have dedicated my full time to the bank. When will I give time to the holding company? I am 64, and I need to consider how much time I have left to develop the entire group. They also have expectations from me.

What are the kind of challenges you see as the bank transitions from a founder CEO to a professional CEO?

A bank is an institution, not a group or a family. When an organisation becomes an institution, it means that systems and processes are primarily running it. Yes, there are key individuals who make important decisions, but their influence is limited.

The main focus is on the institutional systems. The second challenge is how the leadership will adjust to the existing culture. This adjustment can be difficult. When a new person joins, they bring a different culture. An organisation cannot change its culture based on one person; instead, the new leader must adapt to the organisation’s existing culture. If a leader introduces significant cultural changes, that can cause a cultural shock, impacting the organisation immediately. So, culture is the main challenge.

It’s crucial to handle the cultural transition carefully, ensuring the new team adopts the existing culture while gradually making necessary changes. Communication is vital during this period. When trying to change certain behaviours, it’s important to first understand and acknowledge the positive aspects of the current culture.

If you simply impose new directives, there will be resistance. Therefore, recognising the good practices already in place and then gradually introducing necessary developments is key. Culture is the biggest challenge, but other than that, there are no significant issues.

What are the things you will miss about the bank that you nurtured and built from scratch?

I will miss my people. I will miss my customers. My customers and staff love me a lot. That is my inspiration. In nine years, we have achieved `1.35 lakh crore in deposits, with 70% being retail deposits. This shows that people trust the bank, and I am very proud of this achievement. Retiring or holding the position isn’t the main issue for me. My concern is that this institution will be sustained to serve people in the long run. That is my success. My success does not depend on the duration of my tenure as MD; it depends on the institution running well. That is the main thing.

@anandadhikari