IDFC FIRST Bank Risk Management & Asset Quality
Section 2: Approach to build IDFC FIRST Bank
Background
IDFC Limited, a reputed Domestic Financial Institution, was awarded a commercial banking license and set up IDFC Bank. As part of this process,
IDFC Limited transferred its corporate/infrastructure loan assets, infrastructure bonds, institutional borrowings and other liabilities to IDFC Bank
in October 2015.
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IDFC Bank looked out for a profitable retail franchise to merge with to diversify away from Infrastructure and Corporate Loans.
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Capital First Limited was an NBFC that specialized in Retail & MSME financing based on new technologies. The company grew from Rs. 935
crores in 2010 to Rs. 32,000 crores in March 2018. It had a NIM of 8.0%. Capital First had grown the loan book at a 5-year CAGR of 29%, had
maintained high asset quality of GNPA of 2% and NNPA 1%, and had grown profits at a 5-year CAGR of 56%. Capital First was looking for a
commercial banking license to convert to a Scheduled Commercial Bank.
Merger: The two entities merged for their respective reasons and thus IDFC FIRST Bank was created in December 2018.
Issues: Because we were an early-stage bank that had recently been created from an infrastructure DFI background, on merger the Bank had
certain issues. As per the financials of 31st December 2018,
a) The Bank had low CASA at 8.68%.
b) The Bank had low NIM at 1.9% (H1 FY 19) and low Pre-Provisioning Operating Profits OP 0.32% (H1 FY 19)
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Most (91.96%) of the deposits & borrowings of Rs. 1,29,381 crores was institutional. Only Rs. 10,400 crores (8.04%) was retail Deposits.
d) The Bank had large exposure in infrastructure and corporate Loans.
Between FY 19-FY 24, the bank has addressed almost all issues. Our Infrastructure exposure has reduced from Rs. 21,459 crore to Rs. 2,994
crore, CASA has grown to 46.83%, and profitability has increased to 2,437 crores in FY 23.
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With a strong foundation, the Bank now looks forward to sustained growth with profitability from here on.
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IDFC FIRST
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