IDFC Bank, in one of its first investments after starting operations as a private lender, has picked 9.99 per cent stake in ASA International India Microfinance Pvt Ltd for Rs 8.5 crore ($1.3 million), it said on Monday.
The move comes in the wake of banks expanding their reach in rural areas to tap the unbanked segment. IDFC Bank, which received RBI’s nod to function as a bank in July, launched operations in October with 23 branches.
The investment in ASA International India, a division of Dhaka-based microfinance institution ASA International with coverage over 12 countries, will help the bank get access to credit markets in the northeastern part of the country. It will also get a board seat in the institution.
ASA International India has 104 branches covering 22 districts in West Bengal, Assam, Tripura, Bihar and Uttar Pradesh. It had over 1.3 lakh borrowers at the end of December, a loan portfolio of over Rs 60 crore and 400 employees, including 241 loan officers.
The banking sector has seen a series of changes over the last few years with MFIs emerging as partners for banks and playing the role of business correspondents to extend banks’ reach in rural areas to comply with RBI norms.
RBI stipulates at least 40 per cent of bank loans to be given to farmers, small businessmen, students, exporters and small-ticket home-loan buyers.
The stake purchase in ASA International India by IDFC Bank is in line with the RBI mandate where a bank’s investment in a firm cannot exceed more than 10 per cent.
As IDFC Bank looks to establish its base in the northeastern region, it will face stiff competition from Bandhan Bank which has a strong base in the region. Bandhan Bank got RBI’s approval along with IDFC bank to start full-fledged banking operations.
Bandhan Bank, which has been operational for five months now, has over 600 branches across 27 states. The bank’s founder Chandra Shekhar Ghosh, who is also MD and CEO, told The Hindu Business Line that the bank mobilised deposits worth Rs 5,000 crore by December and had also started retail lending operations.