IDFC First Bank expects 25% growth in retail loan portfolio in the long term



V. Vaidyanatan, Managing Director and CEO of IDFC First Bank, said in the bank’s 2020-2021 annual report that the bank’s pre-provisioning profit is currently low due to the background of the DFI (Development Financial Institution) with a higher value of inherited liabilities. and because of the recruitment, the increase in the value of the new bank.

In his message to the bank’s shareholders, V. Vaidyanatan said: “This is being corrected at a rapid pace due to our high profitability on a gradual basis … the quality underlying the bank we are creating is not entirely clear at this stage. you, ”he said in an address to the bank’s shareholders.

Claiming that it was wrong to compare IDFC First Bank with existing banks that are 20-30 years old, or with organizations that were profitable when converted to banks, he said that “the power of increasing profitability is lost in the noise.”

IDFC First Bank reported net profit of Rs 452 crore in 2020-2021. There was a net loss of Rs 2864 crore in fiscal year 20.

The former IDFC bank merged the non-bank finance company Capital First in December 2018, after which Vaidyanathan took over as Managing Director and CEO of IDFC First Bank.

He said that IDFC First Bank has strong profitability in both retail and corporate lending.

In retail, the cost of additional borrowing is less than 5 percent, the interest rate on the loan is more than 14 percent, so additional spreads in retail are greater than 9 percent.

“We specialize in these segments and our borrowing costs (provisioning) are expected to be around 2 percent, depending on the combination of products we finance. Thus, our additional return on equity (return on equity) in retail lending is estimated at 18%. 20 percent, “Vaidyanathan added.

The profitability of corporate lending is stable, and the return on equity is estimated at 14-15%. However, he said this is not visible on the bank’s books due to the higher cost. Rs 1,000 crores in inherited liabilities and retail business costs as this is a new bank.

Carries Rs 27,936 crores of debt with a fixed rating of 8.66% as it was converted from a DFI to a bank.

“When our bank replaces that, say 5 percent, we will save about Rs 1,000 crore per year on an annual basis compared to today. This is an inherited issue of responsibility that will disappear over time, ”he said.

Vodafone Idea Bank’s exposure was Rs 3244 as of June 30, 2021. Among other things, the bank said it plans to raise up to Rs 5,000 crore of debt capital and will seek shareholder approval at the AGM next month.

After assessing the needs for funds, the bank’s board of directors in July 2021 proposed to obtain the consent of the bank members for borrowing funds in Indian or foreign currency from time to time by issuing debt securities based on a private placement. up to an amount not exceeding It has been said to be Rs 5,000.

In terms of set-up value since the merger, IDFC First Bank has invested in 390 branches, 565 ATMs, increased headcount to 12,000, expanded technology, and expanded many new businesses such as credit cards, wealth management, gold loans, premium home loans, and more. …

These investments have a negative effect on us today, but they will become profitable if scaled up, ”Vaidyanathan said.

“The negative resistance from high value commitments will disappear as the bank will pay off these commitments at maturity. And the negative resistance due to investments will disappear with the increase in scale, ”said IDFC First Bank.

Thus, high-margin retailers and wholesalers will shine with results. “Our lending business is extremely profitable. We expect the retail portfolio to grow by almost 25 percent over a long period of time on a combined basis. ”

“This has already been happening over the past two and a half years, as the net interest margin (NIM) has already increased from 1.84 percent before the merger to 5.09 percent in the fourth quarter of fiscal year 21 and then to 5.51 percent. in the first quarter of the 22nd fiscal year. We expect profitability to increase as the loan portfolio expands, “added Vaidyanathan.

The lender is also expanding customer segments to cover premium home loans and has cut interest rates.

“We can consistently receive high quality home loans, the safest category of loans. We expect that mortgage loans will eventually make up 40% of our loan portfolio, ”the official said.

He said the bank is also targeting a 2-1-2 formula to keep its gross non-performing assets (NPA or bad loans) at 2 percent, net NPA at 1 percent, and reserves at 2 percent on an ongoing basis. In fiscal 21, its gross NPV was over 4.15% and its net NPV was 1.86%.

Talking about the bank’s exposure to the cash-strapped telecom player Vodafone Idea, the managing director told shareholders that he expects the government to support the industry, as the telecom player’s total contributions of Rs 1.5 million is owed to the government alone.

“… therefore, they will strive to resolve this issue. Either way, we have a lot of growth capital on our side. We will consider this issue in accordance with the law of the country. “

He said that “a one-off incident will not affect the long-term history.”

The seventh meeting of the bank’s shareholders will be held on September 15, 2021.

The bank will also seek their consent to reappoint Vaidyanathan as Managing Director and CEO for a three-year period starting December 19, 2021.

He was appointed head of the bank for a three-year term from December 19, 2018.

His term expires on December 18, 2021, and the bank’s board approved his appointment for another three years in June 2021, subject to shareholder and RBI approval.

“Accordingly, the bank has applied to RBI to reappoint V Vaidyanathan as Managing Director and CEO of the bank. RBI approval pending. “

Members’ approval is currently being sought for reappointment for a period of three consecutive years from December 19, 2021 to December 18, 2024 (both days inclusive), he added.

* With the participation of agencies

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