Bandhan Bank

Bandhan Bank represents a significant transformation in India’s banking landscape, illustrating the transition from microfinance-led financial inclusion to full-scale commercial banking. Established with a strong focus on serving underserved and unbanked populations, Bandhan Bank has played an important role in expanding access to formal financial services while operating within India’s regulated banking framework. Its evolution reflects broader themes in Indian banking, including inclusive growth, priority sector lending, and the integration of microfinance into mainstream finance.
In the context of banking, finance, and the Indian economy, Bandhan Bank stands as a case study of how social banking objectives can coexist with commercial viability.

Background and Evolution of Bandhan Bank

Bandhan Bank originated from Bandhan Financial Services Limited, a microfinance institution founded in 2001. The institution primarily focused on providing small-ticket loans to low-income households, especially women, in rural and semi-urban areas.
In 2014, the Reserve Bank of India granted Bandhan a universal banking licence, and the bank commenced operations in August 2015. This marked a major milestone, as Bandhan became one of the first microfinance institutions in India to transition into a full-fledged commercial bank.
The transformation enabled Bandhan to:

• Accept public deposits
• Offer a wider range of banking products
• Operate under comprehensive prudential regulation
• Expand its role in the formal financial system

Business Model and Operational Focus

Bandhan Bank follows a retail-oriented and inclusion-driven business model. While it operates as a universal bank, its core strength lies in lending to low-income households and micro-entrepreneurs.
Key features of its business model include:

• Strong focus on microfinance and small borrower segments
• High share of priority sector lending
• Extensive branch network in eastern and northeastern India
• Relationship-based lending with group lending methodologies

The bank complements microloans with savings accounts, term deposits, remittance services, and small business loans.

Role in Financial Inclusion

Financial inclusion is central to Bandhan Bank’s identity. The bank has contributed significantly to bringing previously excluded populations into the formal banking system.
Its inclusion efforts include:

• Opening basic savings bank deposit accounts
• Providing access to affordable credit
• Supporting self-help groups and joint liability groups
• Extending banking services in remote and underserved regions

These efforts align with national objectives such as the Pradhan Mantri Jan Dhan Yojana and broader inclusion strategies pursued by policymakers.

Contribution to Priority Sector Lending

Bandhan Bank is a major contributor to priority sector lending, particularly in agriculture, micro and small enterprises, and weaker sections.
A substantial portion of its loan portfolio consists of:

• Microfinance loans to low-income households
• Credit to small traders and micro-enterprises
• Loans supporting livelihood generation

This focus supports income creation at the grassroots level and contributes to inclusive economic development.

Deposit Mobilisation and Banking Operations

With the transition to a universal bank, deposit mobilisation became a key operational priority for Bandhan Bank. It actively mobilises:

• Savings deposits
• Fixed and recurring deposits
• Low-cost current and savings account balances

A growing deposit base has helped the bank reduce reliance on wholesale funding and improve net interest margins. Deposit growth also strengthens balance sheet stability and supports sustainable credit expansion.

Asset Quality and Credit Risk

Given its concentration in microfinance and small borrowers, Bandhan Bank’s asset quality is closely linked to economic conditions affecting low-income households.
Factors influencing asset quality include:

• Regional economic shocks
• Natural disasters affecting rural incomes
• Regulatory changes in microfinance lending
• Borrower over-indebtedness risks

While the microfinance model benefits from diversification across a large borrower base, it remains sensitive to systemic disruptions, requiring strong risk management and monitoring.

Regulatory Framework and Supervision

Bandhan Bank operates under the regulatory oversight of the Reserve Bank of India, adhering to norms related to:

• Capital adequacy under Basel III
• Asset classification and provisioning
• Priority sector lending targets
• Corporate governance and risk management

As a relatively young private sector bank, it has faced regulatory scrutiny regarding ownership structure and shareholding norms, reinforcing the importance of compliance and governance in banking operations.

Impact on the Indian Banking Sector

Bandhan Bank has influenced the Indian banking sector in several ways.
Its presence has:

• Demonstrated the viability of inclusion-led banking models
• Increased competition in retail and micro-lending segments
• Encouraged innovation in small-ticket lending
• Strengthened outreach in underbanked regions

The bank’s success has also highlighted the potential for microfinance institutions to integrate into the formal banking system.

Macroeconomic Significance in the Indian Economy

At the macroeconomic level, Bandhan Bank contributes to:

• Expansion of formal credit in rural and semi-urban areas
• Support for self-employment and micro-enterprises
• Reduction in dependence on informal moneylenders
• Improved transmission of monetary policy through formal channels

By supporting income generation at the bottom of the economic pyramid, the bank indirectly strengthens consumption demand and local economic activity.

Challenges and Criticism

Despite its achievements, Bandhan Bank faces several challenges.
Key concerns include:

• High concentration in microfinance lending
• Geographic concentration risks
• Sensitivity to regulatory changes in the microfinance sector
• Need for diversification of loan portfolio