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Chandra Shekhar Ghosh, prudent banker, steps out of his comfort zone

Chandra Shekhar Ghosh has been a cautious businessman all through his career, but the acquisition of Gruh Finance appears out of character.

Chandra Shekhar Ghosh
Chandra Shekhar Ghosh (Illustration: Binay Sinha)
Namrata Acharya Kolkata
Last Updated : Jan 10 2019 | 8:03 PM IST
Chandra Shekhar Ghosh is known to be a prudent businessman when it comes to allocating his group’s resources. He transformed Bandhan from being the largest Microfinance Institution (MFI) to a full-fledged bank and successfully led it to an IPO in March last year without going on a spending spree. 

His achievements so far have been riding on a high-margin business model. In that backdrop, the Gruh Finance deal stitched this week, labelled by the market as largely expensive, is seemingly out of sync with Ghosh’s character.

Microfinance is the most profitable lending proposition after informal money lending. The margins, although capped by the Reserve Bank India (RBI), can be as high as 10 per cent, against anything between one and five per cent for commercial banks. Bandhan Bank reported a 10.3 per cent rise in net profit to Rs 331.25 crore for the third quarter ended December 31, 2018. 


A research report by Yes Securities says that Bandhan is paying nearly two times its own valuation to acquire Gruh Finance. Yet, Ghosh might have had few options to reduce promoters’ stake. The bank had three years to reduce promoters' stake to 40 per cent, starting August 2015.

Although the deal will bring down promoters’ shareholding to about 60 per cent, the promoters will still need to shed about 20 per cent more to meet the RBI norms. While analysts point to the downside in the deal, those who know Ghosh closely say he has always exhibited a long-term vision and there must be a method in this deal as well. Around 2000, when most other MFIs were aggressive in lending and setting customer acquisition targets, Ghosh never set any target for customer acquisition for his field staff. 

Again, when almost 90 per cent of microfinance institutions were chasing private equity, Ghosh stayed away from them. He banked on IFC (International Finance Corporation, a World Bank arm) and Sibdi (Small Industries Development Bank of India) for equity. 
Yet another example of his business acumen was evident in 2010. Six months before the Andhra Pradesh government cracked the whip on MFIs, Bandhan in a contrarian bet reduced lending rates by about five percentage points--the lowest in the sector at 19.1 per cent. Amidst the crisis, Bandhan Bank emerged as the unrivalled leader in the microfinance space. 

More recently, by the time the RBI had put curbs on branch expansion for Bandhan Bank as a penalty for failing to meet shareholding norms, Bandhan Bank had already opened 938 branches, just short of the target of 1,000 that it had set by March 2019. 

Ghosh may have relied on micro lending so far but he is also a risk-taker. He recently narrated how he gave up a secured job in the private sector company back in the 1990s to start his own venture from personal savings. “My wife cried the whole day when she got to know I left my job. My in-laws got upset with me.”

Analysts agree that Gruh, although not the best buy, gives Bandhan the comfort of quality portfolio: something that Bandhan has always been banking on. Bandhan Bank's net interest margin was about 9.69 per cent, much higher than Gruh Finance at 4.40 per cent at the end of March 2018. However, Gruh’s margin is one of the highest among affordable housing finance companies, say analysts. Hence, for Bandhan Bank, the deal was the best among companies available in the market. Bandhan Bank can leverage from the huge affordable housing segment in India.

At his organisation, Ghosh has always insisted on investing in human relationships, even at the cost some of minor loan restructuring, say field staff of Bandhan. 

Ghosh also appears to have relied on the experience of industry luminaries. In 2015, when Bandhan turned into a bank, Ghosh roped in Ashok Kumar Lahiri, former chief economic advisor, as an independent director (non-executive part time chairman) of the bank. After Lahiri resigned from the board following his appointment as a member of the 15th Finance Commission last year, Bandhan roped in H R Khan, former RBI executive director, to fill the vacancy. 

Yet as Bandhan Bank steps out of the comfort zone of microfinance business, with almost 99 per cent repayment rate, it remains to be seen if Ghosh’s contrarian bets pay off.

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