Balance-sheet growth not focus at start of bank ops: IDFC

Written by PTI | Mumbai | Updated: Apr 5 2014, 03:46am hrs
BankIDFC and Bandhan are the only entities which were given an 'in-principle' approva for banking licences. Express
Infrastructure finance company IDFC, which has bagged a commercial banking licence, plans to go slow on growing its balance-sheet for the first three years of operations and focus just on compliance and stabilisation.

IDFC and Kolkata-based microfinance player Bandhan are the only entities which were given an "in-principle" approval by RBI for banking licences on Wednesday.

"It is a marathon, and not a sprint. It is a six-nine year process starting from today. In the first three years, it is all about stabilisation, compliance and experimentation.

"This necessarily implies that we are not focused on balance-sheet growth in the first three years," IDFC Chairman Rajiv Lall told reporters here today.

Lall said the new entity will be known as IDFC Bank and added he will be comfortable even if the bank's loan book shrinks over the next three years.

"There is a difference between the loan book and the balance-sheet. Our balance-sheet will be larger than what it is today, not because we have increased the loan book but because we will have to meet cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements."

Explaining the bank's strategy going forward, Lall said over the next three years, there will be consolidation and then ramping up of the businesses.

He said after that the next three years will be about returning to growth or sustaining growth. "Accelerated growth will begin from the sixth year."

Noting that for the first 24 to 36 months, the new bank's profitability would be under pressure, he said, "after we have stabilised, built the essential branch infrastructure and put in place the system and processes, we will be in a position to show growth in profitability."

Talking about the human resource, Lall said two-three senior level executives have already been hired and the process to appoint others has also begun.

"It will be a combination of existing team and new team that will manage the bank. And, between Vikram Limaye, (IDFC Managing Director and CEO) and myself, we will manage both the bank and the rest of the Group," he said.

The CEO of the bank will be from IDFC and the name will be announced shortly, he said.

Currently, the infra lender has four offices and the company may convert three of them into bank branches and one may be kept as headquarters, Lall said.

Explaining the process of transition from an infra lender to a universal bank, Lall said IDFC would form a non- operative financial holding company (NOFHC) which will then hold all the present subsidiaries, including the new entity.

Currently, the infra lender has three subsidiaries - IDFC Alternative, IDFC Investment Banking and IDFC AMC.

"The bank will become the fourth new subsidiary of the NOFHC, which will be the only subsidiary that will be listed on day one," he said.

"What RBI says is that any business that can be done in the bank cannot be done outside the bank, with one exception. And that exception is to do with the infrastructure debt fund. We can keep some of our assets outside the bank and the rest will come into the bank."

Once the transition is complete, the existing shareholders of IDFC will be given some ownership directly in the listed bank, he said. "An existing IDFC shareholder's shareholding will split. So you will have something in IDFC and something in the bank."

Lall said IDFC, which has a foreign ownership of 52-53 per cent, will go for preferential allotment to bring down the promoter holding to below 50 per cent to comply with norms.

"We have to do a preferential allotment to bring the foreign ownership to under 50 per cent. So, we will be looking for domestic investors to take a preferential allotment in IDFC," he said.

He said the company can also go for allotment of shares on preferential basis to the government.

In terms of regulatory requirement of capital, the bank will have an extremely strong balance sheet, Lall said. IDFC, which has also applied for a housing finance company (HFC) licence, expects to obtain it the next two-three months.

Once IDFC receives the licence, it will start disbursing housing loans and then later the loans will migrate to the bank, Lall said.

"The working assumption will be that even the housing loans that we book, whether it is under the IDFC balance-sheet or it is done under the HFC balance-sheet in the next 18 months, will have to be migrated to the banks," he said.

IDFC will also merge its primary dealership business into the bank, Lall added.