Bandhan Bank is looking to bring down the share of group microfinance loans to around 50 per cent by March 2022 and to 30 per cent of its total loan book in the next four to five years.
Diversify asset mix
The share of group loan to the total loan book of the bank, which was around ₹81,660 crore, currently stands at close to 57 per cent.
The bank plans to grow the share of individual loans which are typically not restrained by ticket size (as in the case of group loans) to around 20–30 per cent (of its total loan book) from the current 10 per cent as a part of its strategy to diversify its asset mix.
Group to individual loans
According to Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank, the bank is in the process of upgrading some of their group loan borrowers into individual loanees. The bank chooses some of its existing borrowers under group loan model who have been doing well and generating “good income”. It also checks for the credit quality using data from credit bureaus before upgrading the customer into an individual borrower.
“We developed this product (group loan to individual loan) about two years back and we have tested the system and processes. It has witnessed a very good growth of around 155 per cent on a y-o-y basis. Individual loans account for around 14 per cent of our total microcredit book and in the future we are looking to diversify group loan to individual loan,” Ghosh told BusinessLine.
Save on time
While there may not be much of a difference in terms of interest paid by both set of borrowers, individual loanees are usually not required to attend group meetings which are organised on a weekly or fortnightly basis, thereby saving time. Staff can utilise the time to grow other businesses.
Besides, unlike in group loans where there is a cap on the amount that can be disbursed to a particular group (by a set of lenders), in individual loans that is not the case and the bank can extend a loan based on the viability of the business model, Ghosh said. Moreover, the bank would also be free to cross-sell other products including housing loan, consumer loan etc to these customers, thereby bringing in more business in the future.
The bank, which had unveiled its Vision 2025 last year and laid out a roadmap for diversification, expects the plan to get pushed back by a few months due to Covid induced slowdown and its impact on businesses.
As on September 30, 2021, its total advances stood at ₹81,660 crore. Of this, group microcredit (EEB Group) accounted for around 57 per cent, individual loans (EEB Individual) around 10 per cent, commercial 8 per cent, housing 24 per cent, and retail one per cent.
Under Vision 2025, the share of group loans should come down to 30 per cent; individual and commercial loan together should account for around 30 per cent; housing would be another 30 per cent and the share of retail is expected to increase to 10 per cent.
“Our Vision 2025 plans may get delayed by one year because of this Covid…. we should get a clearer picture next year and we would be able to revise our plan accordingly,” Ghosh said.