Bandhan to raise Rs 1,000 cr by end-March through securitisation

Already the MFI has made a securitisation deal with Kotak Mahindra Bank, to sell a loan portfolio worth Rs 500 cr

Bandhan Financial Services, the Bengal-based microfinance institution (MFI), has entered into a securitisation deal with Kotak Mahindra Bank, to sell a loan portfolio worth Rs 500 crore.

The institution has a licence to also turn itself into a full-fledged bank. Apart from the deal with Kotak, “we plan to sell another Rs 500 crore to (another) private bank by the end of this financial year,” said Chandra Shekhar Ghosh (pictured), chairman and managing director. After the two deals, Bandhan's loan portfolio will be close to Rs 7,500 crore.

A spokesperson for Kotak Mahindra would not comment on the deal. The additional Rs 1,000 crore will help it to expand, especially in the southern part of the country, where it has thin presence. Bandhan will begin banking operations with the simultaneous opening of nearly 600 branches across India.

SPREADING WINGS

• The additional Rs 1,000 crore will help Bandhan to expand, especially in the southern part of the country, where it has a thin presence. Bandhan will begin banking operations with the simultaneous opening of nearly 600 branches across India
• Securitisation is the process of pooling loans into marketable securities and transferring these to the balance sheet of a bank through wither a special purpose vehicle (SPV) or direct sale

Securitisation is the process of pooling loans into marketable securities, transferred to the balance sheet of a bank through a special purpose vehicle (SPV) or direct sale. In the former, the institution collects the loan from the borrowers and transfer it to the SPV, which passes it to the investor. In a bilateral transaction, there is no SPV involved, and the loans are directly transferred to the bank’s books. In its recently concluded deal, Bandhan sold the securities to Kotak through direct assignment.

Bandhan recently got an equity commitment of Rs 1,700 crore from World Bank arm International Finance Corporation (IFC) and Singapore's sovereign wealth fund, GIC. After the capital infusion, expected by March, the core capital of the MFI will be close to Rs 3,200 crore. Currently, IFC holds a 11 per cent stake in Bandhan. Other key shareholders are Financial Inclusion Trust, North Eastern Financial Inclusion Trust, Bandhan Employees Welfare Trust and Small Industries Development Bank of India. Bandhan has a borrower base of nearly six million people. Most securitisation transactions take place before the end of a financial year, when banks are in a rush to meet their priority sector lending targets. Banks in India are required to ensure 40 per cent of their loans go to agriculture, exports and weaker sections of society. The Reserve Bank of India issued an in-principle banking licence to Bandhan in April 2014,  valid for 18 months. It was one of only two entities from the many which applied to get it, and the only microfinance non-banking finance company.

Kotak Mahindra and associates are significant shareholders in Business Standard Limited