Name: Akshay Shirke

Roll No: 18-S-121

Bandhan Bank Limited

Raw Material Cost Analysis:
In banking industry there are no raw material costs as such. Raw materials can be
corresponded with interest paid to the customers or other entities on some products or
services. And the interest costs largely depend on the repo rate as rates are highly regulated
in India. The costs are incurred in different segments.
1. Treasury Segment: Costs are interest expenses on funds borrowed from external sources
and other internal segments.
2. Corporate / Wholesale Banking and Retail Banking: Costs in this segment are interest
expenses on deposits and funds borrowed from internal segments. This cost segment
contributes to most of the direct cost incurred by Bandhan Bank.
Inter segment interest expense represent the transfer price received from and paid as per
the transfer pricing mechanism presently followed by the Bank.

The cost structure of the Bandhan Bank is as follows:

1. Interest on deposits
2. Interest on Reserve Bank of India (RBI) / Inter-bank borrowings
3. Others

Total Interest Expended:

Q3 December 2018 (Unaudited) March 2018 March 2017
525.55 Cr 1770.0 Cr 1505.2 Cr

Total interest expended has increased by 17.6 % from March 2018 because of increase in
repo rate from 6.25 % to 6.5 % and increase in customer base.

1. Interest on deposits
March 2018 March 2017
1681.5 Cr 1291.08 Cr

This part contributes largely to the total cost component of Bandhan Bank. Because for a
bank deposits are the largest source of funds and for that bank has to pay interest to the
depositor. The interest cost on deposits has increased by 30 % because increase in deposit
rates. This part also consists of interest given on savings accounts. The current savings
account interest rate starts from 4.00 % to 7.00 % for domestic as well as NRI accounts. For
a savings account having daily balance up to Rs. 1 lac, Bandhan Bank gives 4.00 % interest
and for daily balance above 50 cr. it pays 7.00 % interest.
Bandhan bank also offers domestic and non-resident rupee term deposit accounts. Its tenor
starts from ‘7 days to 14 days’ to ‘7 years up to 10 years’ for which interest rate starts from
3.50 % to 6.40 % according to the tenure of the term deposit.
For FCNR (B) or Foreign Currency Non-Resident (Bank) account it offers interest rates as
followings:
USD 3.31 % to 3.70 %
GBP 1.53 % to 1.77 %
EUR 0.11 % to 0.17 %

FCNRs are a great option for NRIs because the interest earned on these are exempt from tax
in India. Also, FCNRs in India offer a much higher rate of interest when compared to other
countries. If the currency in which we are paying to the customer is volatile, then it can
affect the cost. For example, if the dollar price increases suddenly at the time of maturity
date then it would affect the interest payment.

2. Interest on Reserve Bank of India (RBI) / Inter-bank borrowings

March 2018 March 2017
51.64 Cr 158.8 Cr

Interest on RBI and inter-bank borrowings decreased by 67 %. Even though repo rate has
been increased by 25 basis points, bank was successful in decreasing this cost by reducing its
inter-bank borrowings. Interest on RBI is nothing but the interest paid on the loan taken
from the RBI. And it can largely be affected by any change in the repo rate. Inter-bank
borrowings rate now is 6.60 % and it changes daily. Bank gives or takes loan from the other
bank through the instrument called as Inter bank Participation Certificate. Bandhan Bank
has entered into an Inter Bank Participation Certificate (IBPC) with risk sharing as issuing
bank and the aggregate amount of participation are reduced from the aggregate advance
outstanding. Gain on IBPC is the excess of income earned on the participation pool and
interest paid to the issuing bank and is recognised on accrual basis.

3. Others
March 2018 March 2017
36.84 Cr 55.32 Cr

The other interest cost also has decreased by 33 %.

Comparative analysis of costs associated with Bandhan Bank and RBL Bank
March 2018 Bandhan Bank RBL Banks
Total Income 5508.48 Cr 5575.75 Cr
Interest Expended (Cost) 1770.00 Cr 274.12 Cr
Cost Margin 32.13 % 4.91 %
Interest on deposits 1681.50 Cr 234.09 Cr
Interest on borrowings 51.64 Cr 8.40 Cr
Others 36.84 Cr 31.62 Cr
Savings Account Rates 4.00 % - 7.00 % 5.50 % - 7.00 %
Term Deposit Rates 3.50 % - 6.40 % 5.00 % - 8.83 %
FCNR Deposit Rates USD 3.31 % to 3.70 % USD 3.95 % to 4.00 %
GBP 1.53 % to 1.77 % GBP 1.65 % to 1.80 %
EUR 0.11 % to 0.17 % EUR 0.10 % to 0.20 %
From the above data, it is evident that even though the interest rates of RBL Bank are higher
than the Bandhan Bank, it has been able to control its costs. But if we go in detail we can
see that it has paid only 234.09 Cr on deposits while Bandhan Bank has paid 1681.50 Cr
interest. So it shows that more money has been deposited in Bandhan as compared to the
RBL Bank. Even though its interest rates are lower than the RBL, people deposited their
money in Bandhan Bank because of its commitment towards delivering the best service to
its customers.