Bank licences hold immense sanctity across the world and particularly so in India. The regulator has been eternally picky on who should be in the business of banking.

In 2014, when Bandhan Financial Services was awarded the bank licence, it was seen as a mark of validation to the then largest microfinance player’s success and capabilities in the sphere of financial inclusion. That SKS Microfinance (now Bharat Financial Inclusion) whose application for small finance bank was subsequently rejected, further cemented the confidence in Bandhan.

Ten years later, it is precisely this factor under question.

Much as Chandra Shekhar Ghosh, founder of Bandhan Bank and its MD and CEO, his letter of resignation stated that the move step down from the position is a voluntary decision, and to look after some of the other business interest which needed more of his time, investors, industry experts and other stakeholders are yet to be convinced with this reasoning for Ghosh’s sudden decision. Despite nearly two weeks passing by since the announcement, Bandhan Bank stock is down over six per cent. Ghosh’s explanations have resulted in more questions than quelling concerns given that in October last year the board thumpingly voted for his reappointment. The business interests were existing even back then.

A cloud on the bank

So what changed in less than six months?

Possibly, the outcome of ongoing forensic audit initiated by NCGTC is casting a cloud on the bank and its soon to be former CEO. Though this has been rejected by the bank’s management in investors calls, the overhang remains.

Certain other developments could have also added up to the voluntary action by Ghosh.

“I am neither an economist nor a banker. I am a pure NGO worker,” said Ghosh in his resignation letter. But did the accidental banker become an incidental businessman?

In 2021, news reports suggest that Bandhan Employees’ Welfare Trust and Angshuman Ghosh, son of CS Ghosh, have bought 25 per cent stake in Nicco Parks and Resorts, with an option to increase stake in the company subsequently. Bandhan Employees’ Welfare Trust holds 14 per cent stake in Bandhan Bank’s holding company. Kolkata state government is also said to hold 25.85 per cent stake in Nicco Park, which was picked up through a distress sale process. Nicco Park is Kolkata’s largest amusement park.

In January 2024, Angshuman Ghosh along with a trust is believed to have acquired majority stake in Quadra Medical Services, which is among the leading diagnostic chains in Kolkata.

Could these acquisitions be responsible for painting Bandhan differently in the regulator’s eyes?

If a CEO of an FMCG, tech or a pharmaceutical company had resorted to such acquisitions, it won’t have been a problem. But in the business of banking, diversified interests especially involving real estate doesn’t bode well with the regulator.

“There is a reason why RBI is very hesitant to hand out bank licences to large conglomerates. The regulator has preferred promoters with banking as the primary business and not one among many. With Bandhan, just the opposite seems to have played out. What started with a bank license spread wings across unrelated businesses,” said a banking sector expert who didn’t want to be named.

Financial integrity

Spreading of interest outside banking operations raises questions around financial integrity of the promoters and the bank. Although there is nothing to prove that there could be anomalies in these transactions, it brings an element of doubt as to whether banking is indeed Ghosh’s primary interest. Added to that, are allegations of evergreening and creation of fictitious accounts and so on, which are currently being investigated in the forensic audit.

The question is whether the Bandhan incident will be seriously taken by the banking industry, given that there are a few cases of potential financial lapses mushrooming under RBI’s watch. Bandhan incident once again reaffirms loud and clear that the bank licence should never be taken for granted. Recently, the requirement for holding company structure under the licensing norms was relaxed for a few SFBs. Will Bandhan simplify its structure to play the game in the right way for the long haul?