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“It is a marathon, not a sprint. It is a six plus three-year process. In the first three years it is all about stabilisation, compliance and experimentation. The next three years are about consolidating learning and starting to prepare for scale. The final three years are about returning to growth or sustaining growth,” says Rajiv Lall, Executive Chairman, IDFC, explaining the infrastructure financing company’s roadmap to become a bank.
Lall expects IDFC’s profitability to be affected over the next three years as it transforms itself into a bank. “The focus will not be to grow infrastructure loans in the next 18-months. For the first 24 to 36 months we will see pressure on profitability.”
IDFC’s loan book is skewed towards infrastructure lending, with over 75 per cent of its loans extended to the segment. One reason for IDFC applying for a bank licence is to deal with this concentrated risk (infrastructure loans). So, in the next 18 months, it will not want to add too much to the infrastructure lending portfolio as it devotes its energies to becoming a bank.
IDFC Bank During the transition process, most of IDFC’s assets will be transferred to the bank, which will be called IDFC Bank. Lall said that IDFC would float a non-operative holding finance company, which will be the holding company for the new bank and the existing subsidiaries of the company. The subsidiaries include Corporate Investment Banking, Alternative Asset Management, Public Market Asset Management and IDFC Foundation.
The IDFC Executive Chairman said that the company’s existing shareholders would automatically get the bank’s shares in proportion to the assets transferred from IDFC to the banking unit. The new bank will also be listed on the bourses. Lall said that the company would bring down the FII holding level, currently at 53 per cent, to under 50 per cent in the coming months through preferential allotment of shares.
He, however, did not give details on hiring plans or the number of branches the new bank would have, saying it is too early to decide on such plans.
IDFC’s shares have fallen over 9 per cent on the Bombay Stock Exchange since the RBI declared the new bank licence nominees on Wednesday evening.
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