| April 3
April 3 India's two newest would-be banks,
Infrastructure Development Finance Co (IDFC) and Bandhan
Financial Services Ltd, are planning divergent paths in an
industry that is crowded with lenders but still fails to reach
roughly half the population.
Mumbai-based infrastructure lender IDFC and
Bandhan, a Kolkata-based specialist in small-value loans, on
Wednesday beat larger Indian corporate houses to win licences to
set up India's first new banks in a decade, meaning they can
expand into a broader range of banking areas such as deposits.
IDFC plans to expand to offer a number of services, while
unlisted Bandhan said it would continue to target a rural
population that is often new to banking.
The Indian central bank has been encouraging banks to push
more deeply into rural areas and increase lending to farmers,
small traders and businesses.
India has 27 state-run banks and 22 private sector banks,
but its ratio of branches to adults is just one-fourth of
Brazil's, leaving about half of households in India - a country
of 1.2 billion people - outside the banking system.
Though that may create plenty of opportunities, there is
fierce competition for the most profitable parts of the market,
while serving remote and poor areas may bring few rewards.
India's banking sector is dominated by state banks and ICICI
Bank and HDFC Bank, the country's two
biggest private sector lenders.
"If every bank were to take the same strategy that ICICI or
HDFC have taken in the past, is there an opportunity to make
money? The answer to that looks like a no," said Shinjini Kumar
of consultancy PriceWaterhouseCoopers India.
IDFC said it planned to use its balance sheet, technology
and a "clean slate" to build a low-cost model, adding that
starting from scratch meant it was not saddled with legacy
technology, badly-designed branches or a costly labour force.
"We have a universal license, we will look into all areas.
We already have experience in some, and we will have to get into
others," said IDFC Chief Executive Vikram Limaye, without
specifying the areas.
ICICI Securities analyst Santanu Chakrabarti wrote in a
note: "IDFC is not likely to be very retail focused in our
opinion. We expect branch numbers to go up to 25-30 at the
outset (from 4 currently), but do not feel it would try to
invest very heavily into an already crowded retail market."
IDFC shares rose as much as 8.8 percent in early trade on
Thursday before ending down 2.3 percent.
Bandhan, which has 5.5 million customers, nearly all of them
women whose loans average 10,000 rupees ($170), said it would
continue to cater to a rural and unbanked customer base from its
existing branch network.
"Why go after the same person and ask him to get another
account? Why not just go after those who do not have any bank
accounts," Managing Director Chandra Shekhar Ghosh told Reuters.
Applicants that did not win licences included billionaire
Anil Ambani's Reliance Capital ; the financial arm of
Larsen & Toubro, India's biggest engineering group;
and Shriram Capital, the holding company for Shriram Transport
The last new bank to start in India was Yes Bank,
in 2004. The Reserve Bank of India said further licences could
be awarded in future.
($1 = 59.8050 Indian Rupees)
(Additional reporting by Archana Narayanan; Editing by Tony
Munroe and Mark Potter)