IDFC First Bank reported a loss of Rs 218 crore in the fourth quarter ended March 2019 mainly because of a Rs 419-crore provision on three loan accounts. But V Vaidynathan, who took charge as CEO of the new bank after the merger of Capital First and IDFC Bank in December 2018, said that the provisions have to be seen as a prudent measure, which puts the bank on a solid platform. In an interview with Joel Rebello, Vaidyanathan said higher margins, faster retail loan growth and a decline in infrastructure exposure will help the bank get back to profits.
Edited excerpts:
Why did you have to make this provision?
As we were going through the books of this quarter, there were three accounts — two financial services and one infrastructure accounts. The two financial services accounts had been recently downgraded and we felt it will be prudent to represent the downgrade in the way we look at them. The account of Rs 1,000 crore was paying us but with some delay and we felt concerned. In this way of disclosing, there wouldn’t be any surprise to the market in case the account slips to NPA at a later date, though we don’t expect it to get there. This provisioning was an appropriate way for us to be transparent and clear with stakeholders.
Is this a conscious strategy to the clean-up first? Are there more surprises in store?
There are three components to our book. One is the Rs 30,000-crore Capital First loan book, another is IDFC Bank excluding these three accounts and the last is these three accounts. As far as the Capital First book is concerned, it is absolutely clean with eight years of seasoning, it has gone through demonetisation, GST, interest rate hikes and has always had low net NPA of less than 1%. Next is the IDFC Bank book excluding these three identified accounts – here the rest of the infrastructure and corporate loans are behaving well. Finally, on these three accounts, we have reflected them appropriately now. So, we don’t see concerns on the rest of the book.
You had to take a goodwill hit of Rs 2,599 crore in FY19 and also made these extra provisions. When will things turn around?
You are underestimating the past work of the bank. The bank has built an excellent platform for CASA and retail deposits. This is an early stage. Merger benefits are already beginning to show. CASA has grown 62% from Rs 5,700 crore to Rs 9,100 crore. Last year, our NIM was 1.7%, while in this quarter it is 3.03%, which is a 130-basis points jump. The incremental yield will become stronger and net interest margin (NIM) will continue to expand in subsequent quarters. Therefore, when you look forward to the next four quarters, I am pretty confident that NIM will continue to expand in subsequent quarters. Therefore, when you look forward to the next four quarters, I am pretty confident that NIM will continue to expand in every of these quarters. We have specialised in providing loans to tiny entrepreneurs, who are relatively unorganised, pay better rates and are still very profitable. We are targeting 4.5-5% NIM in due course with increase in every quarter.
What is the timeline you have set for the bank?
We have to look at a five-year horizon because the bank has a history of converting from a domestic financial institution and had Rs 70,000 crore of wholesale loans without any CASA deposits. In five years, we are planning a retail book of over Rs 1 lakh crore, and NIM will improve to 4.5-5%. We are also looking at a return on assets of 1.5%. So we have set ourselves a path for five years and I have no doubt that we will deliver.
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