While the CEO will be chosen from within, IDFC intends to build the team with the help of outsiders. “Our collective experience is not entirely appropriate for building a bank. It will be a combination of the existing and new team which will manage the bank,” Lall told reporters.
IDFC has won an in-principle approval from Reserve Bank of India (RBI) to set up a bank and will soon start restructuring itself to meet regulatory guidelines and plans to offer the ownership of the bank to shareholders.
IDFC intends to be a universal bank and, therefore, in addition to growing the corporate book will also focus on improving its retail reach. Lall told reporters the company was currently working out a strategy on how to develop its retail liabilities and asset franchise. “We will start with branches both in India and in Bharat and we will pursue our financial inclusion strategy in parallel with our retail banking strategy. To gain time, we will start with our branch expansion ahead of our official date of commencing business,” he said.
IDFC has a capital base of Rs 2,100 crore. The infrastructure lender also plans to move a bulk of its assets to the newly formed bank, including non-performing assets and the provisions. The bank, however, will be the only subsidiary, to be listed on day one. IDFC’s shareholders will own 100% of the new bank, directly and indirectly — shareholders of IDFC will be entitled to shares in the new bank, much like it happens with a demerger. While the specifics of the deal are yet to be discussed, Lall promised shareholders they would not be “short-changed”.
To comply with RBI guidelines, IDFC will be termed a holding company, under which it will hold a non-operating holding finance company (NOHFC), Lall explained. The NOHFC will have in its fold all of the financial services businesses of IDFC, which includes investment banking, an asset management company, alternate funding firm and the bank.
The foreign shareholding of 53% in IDFC will need to brought below 50% within the next 18 months and to achieve this, the company will offer preferential shares to domestic investors though no investors have yet been approached.
Lall explained that the process of establishing a bank would take nine years with the first three years spent on becoming compliant with RBI guidelines as also experimenting with new approaches. The next three years would be used to consolidate IDFC’s learnings during the first phase, while the final three years would see a return to sustained growth and profitability.
Asked what the bank would be called, he said, “We are very boring people, so for now we will stick with the IDFC Bank name. But maybe crowdsourcing a new name through a competition may be a good idea.”
As on December 31, 2013, the company had a loan book of Rs 54,552 crore and its net worth stood at Rs 15,250 crore. Its capital adequacy stood at 24.8% (of which tier-I was 22.5%) and its net interest income was Rs 2,036 crore at the end of the December quarter. IDFC’s growth has been driven by the substantial investment requirements of the infrastructure sector in India, combined with the growth in the Indian economy over the last several years. Its largest shareholders include the government of India (17.2%), followed by Sipadan Investments (Mauritius) at 10%, LIC at 6.8% and RBS with 6.4%.