‘IDFC First to focus on cash flow-based lending business’ | Mint - Mint

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Private sector lender IDFC First Bank posted a 61% rise in net profit in the June quarter on the back of 36% growth in net interest income. Its loan book and deposit book grew by 25% and 44%, respectively, over a year ago. It also expects to continue growing at a steady pace. In an interview, IDFC First’s chief executive V. Vaidyanathan said demand for working capital loans from small businesses is on the rise following the government’s capital expenditure push. Edited excerpts:

What is your outlook on credit and deposit growth for FY24?

We guide the bank to grow at 22-24% on the loan book side. Our base is still very small. If you look at our base, the loan book is only Rs1.7 trillion. The Indian banking system’s aggregate loans are at about Rs150 trillion and, therefore, this is just the beginning for us. The retail book for our bank is about Rs97,000 crore, so growing at 24% in this large market is quite achievable. Besides, there are guard rails or more precise tools for cash flow-based lending due to the formalization of the Indian economy. Now we can see transactions and balance in the bank account. Credit bureaus have 600 million records. On the deposits side, we can grow 40% this year without having to increase interest rates in the current market environment.

While you’re shrinking the legacy infrastructure book, are you open to fund corporates, at least the well-rated entities?

Yes, of course. We believe in only one thing—cash flow. There’s a difference between a corporate already generating cash and one which says it will. Our experience has been that project financing has project setup risks and we do not want to take setup risks of any type. But if a corporate is generating cash, we look at it. We are open to working capital finance as it is based on cash flow.

Where is working capital demand originating from?

Small and medium enterprise working capital is a huge area. The government has set a capex target of Rs10 trillion for FY24, and it is going into projects, whether roads, bridges or highways. The capital is flowing down to ground-level entrepreneurs because the government gives the job to a contractor, who then gives it to subcontractors. So, big money is funding small businesses and their requirement for working capital is there.

Some banks are reporting attrition at junior levels, especially in sales. What is the situation at IDFC First?

The trend which the reports have highlighted is true. Our numbers and attrition at entry levels typically are more for those opening accounts. We compared our numbers and we are kind of better than what reports suggest. We will be putting them out as part of the annual report. When a bank opens branches, it looks out for experienced salespeople, and naturally the employees in their early 20s get a higher compensation if they move.

When will the bank exit its legacy infra exposures?

For all the legacy infrastructure loans that came with the merger (IDFC Ltd and IDFC First), we gave a glide path of FY25. Now it is at Rs3,600 crore from Rs22,000 crore in FY19. In two years, this entire book will go away.

Will you look at setting up new branches?

We will continue to expand the number of our branches, by about 150 this fiscal year.

Given the swap ratio of the merger, do you think IDFC shareholders benefit more than the bank counterparts?

I think everybody wins here because uncertainty is a big disturbance to the markets. That uncertainty is gone once and for all. When the two entities merge, this will become an independent institution. Of course, IDFC Ltd has got a good deal, but I think the bank shareholders have also got a good deal because the bank is going to issue 160 million fewer shares than what it is cancelling.