IDFC First Bank MD & CEO V Vaidyanathan discusses the company's quarterly results and highlights the driving forces behind the bank's growth, in conversation with Samina Nalwala.
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Also read: https://bit.ly/3xOxdbd
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00:00 Hello and welcome. We have with us a very special guest, V. Vaidyanathan, MD and CEO
00:04 of IDFC First Bank joining in. Good morning, Mr. Vaidyanathan. It's a very pleasant morning for
00:10 you. It's been a spectacular quarter for IDFC First Bank and like you said to me before we
00:15 got into this conversation, it's actually been a pretty solid year. Deposit growth,
00:19 let's start with that. It's come in at over 40%, 42% to be precise, way above the industry average
00:26 of about 13 odd percent. What's led to this growth and help us understand whether will
00:31 you be able to keep up with such momentum going into F525? First of all, Samina, good morning.
00:39 Nice to speak to you and your viewers. See the thing about deposit is that since five years at
00:47 the start of the bank, we have been focused on one thing, to put out great products where customers
00:52 can have a benefit and they can enjoy the product. Second is that we have really focused on customer
00:59 experience. We want to keep hacking customer experience both on the internet, the mobile,
01:05 the branches, the call center, every touch point we want to give customers a super experience.
01:10 So these two things are really helping the bank. And of course, we've become a brand and becoming
01:16 a brand is a very momentous occasion in anybody's life. When you're not much known,
01:21 then you don't get deposit. When you're known and people think of you as the right person,
01:25 you attract deposits. We are growing, we have 40%. Now to your question, how does it look like for
01:30 the next year? Well, I say that we want to grow at least 30% next year on this base of about 2
01:36 lakh crores. So we think it's definitely possible. So Vaidyanathan, 30%, that I think is still going
01:44 to breeze the street. I mean, 42% or 30%, I don't think anyone's complaining. But what has led to
01:51 this push on deposits? Have you repriced your deposits? Is that what has led to you doing much
01:57 better than some of your other peers? Give me a sense of what is pushing growth at this stage.
02:01 I see last, like I said, three, four years we invested in the brand. And known if you think
02:08 of great banks like the well known big banks, ICICI bank, HDFC bank, etc. They are very well
02:14 known for 25, 30 years. So everybody knows them. So our bank was less known. So to build the image
02:23 of the bank was a very crucial moment to get that kind of deposits, number one. Number two, of course,
02:31 on interstates front, actually, incidentally, for the first 5 lakh rupees, we are paying like
02:41 the street just for information, we pay up to 3% up to 1 lakh rupees. And above that we are offering
02:47 7%. So because anyway, we're paying fixed deposit, that kind of rate, we might as well operate here.
02:52 But for the first 5 lakhs, we're like just bang on with the street with the rest of the peer group.
02:56 Right. So Vaidyanathan, credit cost has seen guidance has seen a hike. You want to talk to
03:02 me about why and what is driving that? See, the good thing about a credit cost
03:09 has been is quite low. You know, for the segments we played, our credit cost is only 1%, actually
03:15 0.97% of the total assets of the bank, or 1.32% of the loan book, which is frankly quite low.
03:27 And it's been like this, many people say, guys, listen, your name is so high, can you manage it
03:32 like this? Well, it has been so like this for 13, 14 years. So we feel that we have a unique
03:37 specialization in the segments we operate. And particularly in rural India, we were focusing upon,
03:43 you know, the asset quality is just so good. Maybe people in rural India just want to pay.
03:49 They're just more honest or God fearing, God knows. But rural India repayment is super.
03:54 And I want to talk to you about your costs, your OPEX. That is one space that, you know,
04:01 you've guided as well for when the second half of FY25, cost to OPEX will come down,
04:07 cost to OPEX will come down. How quickly can we see that?
04:11 You know, we have said that by Q3, Q4, you know, we've been building this bank,
04:18 and building the bank meaning we have set up branches, we took it from 200 to 900 branches,
04:25 you know, ATMs, we took it from, you know, 150 to 1,100. You know, all of these things cost money,
04:31 you know, we set up, made a really fantastic app, even app costs money. So all of these things have
04:36 been, you know, causing, costing money when building it up. But by Q3, Q4, we expect many
04:44 of the businesses to turn profitable. And therefore, we expect Q3, Q4 cost income to come down to 60s,
04:50 actually. Mr. Vaidyanathan, I want to talk about margins and I know decline there is par for the
04:56 course, but how much more and for how much longer can we see margins ease?
05:03 Margins, you know, we feel we will be able to sustain it. I mean, we don't have a problem with
05:09 that. It's the nature of a business. So fair to assume that this is the range where you will hold
05:14 margins at for most part of FY25? Yes, yes, you should expect that, people should expect it from
05:20 us. Mr. Vaidyanathan, there are some banks that have gone out and recalibrated their unsecured
05:24 loan growth. Give me a sense of a mix in terms of secured versus unsecured for IDFC.
05:31 And are you recalibrating at this stage? Yes, we are also recalibrating it. We are
05:36 growing more secured businesses like gold loans, loaning its property, or mortgage loans,
05:43 working capital backed business financing, property backed working capital versus financing,
05:50 they're doing home loans, etc. Of course, you're growing that. But, you know, on the unsecured bit,
05:56 you know, we have this unsecured retail financing category, which is the area where even RBI raised
06:02 the risk weights, and all that. There, our book is about 15% of the book. And we feel it's very
06:10 moderate. And more than that, anyway, we're moderating. But the important thing is that
06:14 the NP on that book is really very low. Our NP on the book is only 1.55%. I mean, the unsecured
06:25 book. And our net NPA is 0.38%. And it's all backed by cash flows. And cash flows, meaning
06:35 when we lend, we look into the bank account statement, account of the customer, we see the
06:40 money customer has, keeps balances of that amount, and then we lend against it, the customer.
06:45 Right. ROAs, Mr. Vaidyanathan, they haven't moved very much. You want to tell me what sort of
06:52 guidance are you setting up for yourself on ROAs for FY25? ROA, you know, frankly,
07:00 the momentous occasion for the bank came when we moved our ROA to 1% plus. So last year,
07:06 we were 1% plus. So we this year also we were 1% plus. And by the way, if you look at large
07:11 corporations, like even, you know, large state owned institutions, etc, who have taken, or even
07:16 Indian institutions, private institutions have taken like 15, 20 years to get to these numbers,
07:20 reach there in five years, or five and a half years from zero five years ago. So even this year,
07:25 we expected to be somewhere in the zone, maybe slightly upward bias. But by Q3, Q4, we expect
07:31 our ROA to open up meaningfully, we expect our cost to income ratio to come down, we expect our
07:37 profitability to touch, let me say, you know, with all the caveats of life, we can say that
07:44 we expect to go past the 1000 crore mark in fact, by fourth quarter of this year, probably,
07:50 you know, beat it by a margin. Wow, that those are milestones, and I guess and I hope for you
07:56 and the bank's sake that this gets achieved to just one quick last one, when can we expect you
08:02 to bring down deposit rates? You've seen some of your peers do this actually, right where
08:06 they had higher deposit rates to try to build a liability franchise. And now deposits rates
08:11 have started reducing. It seems like it's some sort of a strategy at play for the sector as whole.
08:17 Is that something you're going to be looking to doing as well?
08:19 See on liabilities, we already brought it down to 3%. We were actually paying I mean,
08:26 it's not that I'm very proud about it, because you don't make much money from us if you keep
08:30 savings account plus small balances. But with that caveat, or rather with that disclosure,
08:35 the fact is that we are paying only 3% up to 100000 and we're paying only 4% up to 500000
08:41 rupees and most people keep money in these balances in these amounts. So we are already
08:46 quite, you know, we're like somewhere there. The thing is that for fixed deposits, we are give or
08:52 take a line of the market, even if the like maybe 20, 30, 50 business points over the large players.
08:57 It's only the savings account above 500000 we're paying attractive rates. But you know, that's
09:01 only for people keeping high balances. So short point is already brought it down last year from
09:06 4% to 3%. Right. Thank you very much, Mr. Vidyanathan. I would have loved to chat with
09:12 you longer, but we're completely short of time. Good luck. Congratulations. I hope that FI25
09:18 is as significant and profitable for IDFC Bank as FI24 is spent. And we'll hopefully see you soon.
09:23 Samina, thank you very much for that. But you know, on this front on interest rates,
09:28 I want to actually thank all your viewers also and depositors, who even after we dropped the rates,
09:33 they kept increasing balances with us. That is some amount of trust you're showing in us.
09:38 Yeah, I think Mr. Vidyanathan, your bank has struck a chord, which is commendable,
09:42 at least at these times when it's difficult. This business is becoming more and more difficult as we
09:46 see it. I don't know, I have just no words to thank everybody who are helping us build this
09:50 bank. And I want to thank all our customers and everybody. Thank you. Thank you very much.
09:54 Thank you so much.