Born out of microfinance, Bandhan Bank now bets big on AI and digital banking

For Ratan Kumar Kesh, Executive Director and COO of private lender Bandhan Bank, his current stint has turned out to be unexpectedly fulfilling. A career banker with nearly three decades of leadership experience across institutions such as ICICI Bank, HDFC Bank, YES Bank, and Axis Bank, Kesh says Bandhan’s mission has given his role a very different meaning.

“At Bandhan, we have two responsibilities. The first is financial inclusion, which is bringing customers into the formal banking system so that they can use banking channels instead of keeping money under their pillows. But the second responsibility is to go beyond financial inclusion,” says Kesh.

He points out that with more than 560 million Jan Dhan accounts, the government has already made significant progress in bringing millions into the formal banking fold. But for Bandhan, the larger objective lies in what comes next.


“Our endeavour is really about financial empowerment. How do you give a customer a small Rs 20,000 or Rs 30,000 loan and empower them to generate income, employ two more people, and continue growing? How does that same customer manage their household better and lead a healthier, happier life? That is financial empowerment,” Kesh says.

At the same time, he adds, the responsibility of a bank cannot end with expanding access to credit. “We also have to manage underwriting and credit risk carefully. The idea is to empower the right customer without taking undue risks that could eventually lead to losses,” he says.

At Bandhan Bank, Kesh has been the Executive Director & Chief Operating Officer since March 31, 2023. He served as Interim MD & CEO from July 10, 2024, to October 31, 2024—during the transition phase when former MD & CEO and the founder of the bank, Chandra Shekhar Ghosh, retired at the end of his tenure.

Kesh’s experience reflects Bandhan Bank’s journey from a microfinance institution to a universal bank, which has not merely been about scale. It has been about fundamentally reimagining what kind of institution it wants to become.

According to Kesh, the transformation has revolved around three critical dimensions. This includes de-risking the lending portfolio, building a more granular deposit base, and expanding from a predominantly Eastern India-focused institution into a truly pan-India bank. None of this, he says, would have been possible without technology becoming central to the bank’s strategy.

When Bandhan received its universal banking licence in 2014, the institution remained heavily dependent on microfinance lending, with nearly three-fourths of its portfolio comprising unsecured loans. Even as deposits grew rapidly over the years, the liability franchise still carried a sizable bulk deposit component. At the same time, geographical concentration remained a challenge. To address all three areas simultaneously, Bandhan embarked on an extensive technology transformation exercise.

The objective was not simply modernisation for the sake of it. A universal bank requires the ability to launch and service multiple products across customer categories. This includes everything from retail loans, corporate lending, housing finance, current accounts, affluent banking, women-focused products, senior citizen offerings, and eventually even credit cards. That, Kesh argues, demands a far more flexible technology architecture.

The technology overhaul extends well beyond customer convenience. Governance, compliance, and operational guardrails have become equally critical. With a workforce of nearly 75,000 to 80,000 employees, Kesh believes it is impossible to rely solely on manual controls. Instead, governance frameworks must be embedded directly into technology systems to reduce operational errors and strengthen compliance adherence.

At the same time, Bandhan’s large legacy microfinance base of nearly 13 million customers offers the bank a unique data advantage. Many borrowers who began with loans of Rs 20,000 have now graduated into significantly larger businesses, generating meaningful incomes and requiring broader banking relationships. The challenge, according to Kesh, lies in using structured and alternative data intelligently to deepen financial empowerment without compromising underwriting discipline.

As Bandhan expands its digital and artificial intelligence (AI) capabilities, Kesh, in a conversation with The Economic Times Digital, maintains that technology can enhance banking, but cannot entirely replace human judgement, empathy, and common sense, qualities he believes will continue to define the future of customer relationships in banking. Edited excerpts.

The Economic Times (ET): Bandhan’s journey from a microfinance institution to a universal bank—how central has technology been to that transformation?
Ratan Kumar Kesh (RKK): Technology has been extremely central to our transformation journey. When I joined Bandhan in 2023, the bank had already started de-risking its portfolio. To become a universal bank, we had to move away from being predominantly a microfinance institution where nearly 75% of the portfolio was unsecured in nature.

There were three important dimensions to this transition. First was building a more diversified lending portfolio. Second was creating a more granular deposit base because while deposits had grown strongly over the years, there was still a sizeable bulk component. Third was geographical diversification since the bank had a stronger concentration in Eastern India.

All three required a deep technology-led transformation. Earlier, the bank was operating largely through a “bank in a box” structure, with FIS providing most of the systems, which included lending acquisition, servicing, data platforms, and operational capabilities. But to become a universal bank, that architecture had to evolve.

In October 2023, we migrated to a modern Oracle core banking platform along with nearly 16 surrounding systems, including onboarding, workflow management, debit cards, deliverables management and data platforms. That was only the starting point.

A universal bank requires multiple products across lending and liabilities, which include retail loans, housing, wholesale banking, auto loans, personal loans, current accounts, affluent banking, women-specific products and eventually credit cards. You also need sophisticated servicing capabilities through mobile banking and internet banking platforms. So, we spent the last few years building all the supporting layers, including loan origination systems, CRM systems, collection systems, and digital onboarding journeys.

Banks today are effectively technology companies operating in the banking business. At the same time, governance and compliance are equally important. With nearly 75,000 to 80,000 employees, you cannot depend purely on human controls. Technology has to create the guardrails that prevent operational and compliance errors. Similarly, we have to ensure that technology cannot make a mistake on governance, operations, compliance, and adherence. So, those are the important areas.

ET: A decade ago, many banks believed customers should not need to visit branches for most services. How far has Bandhan achieved that?
RKK: It differs by customer segment. In microfinance, our largest lending business, the original philosophy itself was that customers should not be forced to visit branches because they are entrepreneurs running small businesses. Even a few hours away from work matters significantly to them.

So, our employees, almost 50,000 of them, carry tablets and visit customers at their homes or workplaces. They conduct household income assessments, underwriting checks and creditworthiness evaluations digitally on the spot. Weekly repayments are collected either in cash or through QR payments during group meetings organised near the customer’s location.

The customer only needs to visit the branch once during loan disbursement because we require an additional layer of verification by branch officials. Otherwise, most activities happen at the customer’s doorstep.

For retail, housing and wholesale banking, we are building sophisticated digital journeys. Customers can apply online through websites or digital platforms while underwriting and risk evaluation continue to involve human judgement. We do not want pure digital lending without adequate risk assessment.

On the deposit side, over 90% of onboarding already happens digitally. Customers can either use Aadhaar eKYC and video KYC through self-service journeys, or relationship managers can assist them using tablets. India Stack capabilities have made onboarding significantly faster by integrating Aadhaar, PAN, GST, and other verification systems in real time.

Service journeys are the next area of focus. Around 50% of servicing currently happens through self-service channels, but our goal is to reach 90-95% through mobile apps, WhatsApp banking and digitised service layers.

Overall, nearly 80% of our customers do not need to visit branches regularly except for cash deposit-related requirements and certain senior citizen customers who still prefer physical interaction.

ET: Data and AI are becoming central to banking. How is Bandhan using data to shape lending and decision-making?
RKK: One advantage we had even earlier was a fairly strong enterprise data lake. As we migrated to the new technology stack, all structured data continued flowing into the enterprise data lake regularly.

However, what we are now building is the integration of unstructured data. Structured data includes transaction records, product usage, and customer activity. Unstructured data includes conversations, voice interactions, emails, WhatsApp messages, and relationship manager observations. Combining both creates far more meaningful customer insights.

We are also modernising the data stack to move from T+1 data availability to near real-time and eventually real-time capabilities. In banking today, delayed insights are no longer enough if you want contextual customer engagement.

Another major area is data protection and DPDP compliance. We are creating colour-coded data frameworks so that sensitive customer data remains fully protected. With AI systems, there is always the risk of prompts being misused to extract information. Therefore, governance around data access and customer privacy becomes extremely important.

On AI specifically, I believe the discussion around models is often exaggerated. AI has multiple layers—energy, chips, cloud, models, and applications. As a bank, I cannot control chips or energy. Models will continue changing rapidly. This week, Anthropic is better. Next week, OpenAI will be better. Next week, Perplexity may have something better.

Therefore, our focus is on ensuring our cloud capabilities, data infrastructure, and applications are AI-ready. The loan origination systems, CRM platforms, and collection systems now come embedded with AI capabilities. The objective is not to eliminate human judgement entirely but to make downstream operations more efficient.

In banking, I am personally more comfortable using smaller models within our own environment rather than exposing sensitive banking data externally. Data security remains non-negotiable.

ET: Bandhan’s microfinance customer base gives you a unique data advantage. How are you using that?
RKK: We are fortunate to have around 13 million microfinance customers, many of whom have completed multiple lending cycles with us. Someone who started with a Rs 20,000 loan may today be managing a Rs 1.5 lakh business loan. That means we understand these customers deeply.

Our responsibility goes beyond financial inclusion. Financial inclusion means bringing customers into formal banking. Financial empowerment means enabling them to grow businesses, generate income and improve household stability.

Data helps us balance empowerment with risk management. Many customers may not possess traditional documentation but have alternative data, which include repayment behaviour, transaction history, QR payment usage, family linkages and business cash flows. These are data that can help us assess creditworthiness.

At the same time, bureau scores alone are no longer sufficient because customers increasingly understand how to improve scores artificially. So, we combine bureau data with ecosystem-level insights, repayment histories and alternate data sources to improve underwriting quality.

The other day, we met a woman running a small tiffin service business. Today, she has a loan exposure of around Rs 1.5 lakh with us. But when we looked at the scale of her operations, her annual business turnover was upwards of Rs 55 lakh, with margins of nearly 20-30%. Frankly, many large corporates do not operate at those kinds of margins. That means she now has meaningful disposable income and savings potential.

The question for us then becomes: how do we move beyond simply giving her a microfinance loan? How do we provide her opportunities to save and earn through deposits, secure herself through insurance products, or even access a small home loan or a two-wheeler loan if needed? That is where the real transition happens—where a customer moves from being only an MFI borrower to becoming a full-fledged banking customer. Technology plays a critical role in helping us identify such customers and serve them with multiple products at the right stage of their growth journey.

AI-driven language capabilities are also becoming important. Customers may interact in regional languages, while AI systems help convert those interactions into banking insights. This helps us serve customers better and empowers frontline employees who may previously have specialised in only one product category.

ET: Connectivity remains a challenge in many areas. Does that create operational issues?
RKK: Connectivity is still an issue in several regions. To address this, our tablets are designed with offline storage capabilities. Employees can collect and store customer data offline, and once connectivity becomes available, the information automatically syncs with central systems.

That capability has become extremely important for our field operations.

ET: How are you approaching MSME lending, especially where many businesses may have limited formal records?
RKK: MSME lending is growing rapidly for us. One thing we earlier lacked was a sophisticated current account ecosystem. Now that we have built stronger liability products and digital current account journeys, we are increasingly able to build full banking relationships with MSMEs (micro, small, and medium enterprises).

The key for MSMEs is speed. They often need financing quickly to fulfil business orders or working-capital requirements. Therefore, decision-making speed becomes critical. Digital underwriting systems help significantly here.

At the same time, we remain cautious on underwriting quality. While we use digital underwriting tools and rule engines, we still prefer deeper diligence because we want growth to remain accompanied by portfolio quality.

Structured data, alternate data, and ecosystem insights all contribute to better underwriting decisions. In some cases, we also become more comfortable when other established banks have already built lending histories with those businesses.

ET: Has technology improved efficiency, costs and customer experience?
RKK: Cost reduction in banking is slightly complicated because we are simultaneously investing heavily in new businesses, new technology layers and digital capabilities. So, while unit-level acquisition and operational costs are declining, overall technology investments remain elevated.

For example, digital onboarding has reduced duplication across products. Earlier, separate onboarding processes existed for savings accounts, loans, and other products. Now customers can be onboarded once at the bank level, and additional products can be layered later.

Centralised underwriting and operations have also reduced duplication. Servicing costs per customer are coming down because processes are becoming more integrated and automated.

However, since we are still building new business lines and investing in cloud infrastructure, cybersecurity, AI, and fraud prevention, the overall cost-to-income ratio may remain elevated for some time before benefits scale meaningfully.

ET: What do you see as the limitations of technology in banking?
RKK: Technology is extremely powerful, but there are clear limitations. One concern is overdependence. Increasingly, people assume AI will provide every answer or solve every governance issue. That mindset can become dangerous in banking.

Technology should enhance human effectiveness, not replace human judgement entirely. Underwriting, governance, AML risk management, and customer servicing still require human thinking.

To become a good banker, you still need to retain judgement, instinct, and the ability to think independently. AI should make bankers more effective, not replace their thinking altogether. Technology can certainly strengthen governance and compliance frameworks, and digital underwriting can reduce acquisition costs while improving customer experience. But underwriting cannot be handed over entirely to technology. Managing risk, assessing creditworthiness, and understanding customer behaviour still require human judgement. Technology alone will never be enough.

Second, while technology provides guardrails, employees should not stop applying common sense. Banking often involves non-routine situations that rule engines cannot fully solve. Customers may have complex requests that require empathy and contextual understanding.

Third, banking remains a service business. Most routine transactions may become automated, but when customers genuinely need support, the quality of human interaction becomes critical. Knowledge, empathy, and problem-solving abilities will continue to matter enormously even in a highly digital environment.

ET: You became the interim CEO after Chandra Shekhar Ghosh, the founder and CEO of Bandhan Bank, stepped down from the position. What lessons did that phase teach you?
RKK: The roadmap towards becoming a universal bank had already been defined, so the objective was not to redesign strategy entirely. The bigger challenge was maintaining confidence among customers, employees and the market.

When a founder-CEO exits, institutions must reassure stakeholders that stability and continuity will remain intact. That period reinforced for me how important people and culture are, alongside technology.

We also realised the importance of granularity in banking. Diversification across products, customers, and geographies creates resilience. Technology becomes critical in enabling that diversification effectively.

Another important lesson was around governance, reconciliation and operational visibility. Daily dashboards, reconciliation systems and governance frameworks become extremely important because they provide early signals around deposits, lending trends or operational anomalies.

Ultimately, governance, customer trust, and people remain the three most important pillars. Technology enables growth, but these foundational elements determine whether institutions remain sustainable over the long term.