IDFC Bank eyes 6 million customers by March 2020

Organisations need a single number on which their staff and management can focus on — be it profit, topline, market share or number of customers.

Reams of paper and complex calculations are compressed and simplified into that number to convey a company’s goals.

For IDFC Bank, that number is having six million customers on board by March 2020. These will be ‘banking’ customers or those who have an active account or borrowing from the bank and not merely payments customers. But why six million? Why not, say, four million or 10 million?

Rajiv Lall, the bank’s Managing Director and CEO, explained that the target was fixed based on what they thought was achievable as well as aspirational.

Achieving that number will straightaway catapult the bank into the top four private banks in the country at that time.

He hopes to acquire five million lower income customers and one million affluent customers within the target date of a little over three years.

The bank has already made a good start in the first 12 months of operations with about 1.5 million customers now on board.

A good part of that was helped by its acquisition a few months ago of Grama Vidiyal Micro-Finance, which brought in nearly a million customers. It will now have to repeat this feat over the next three years.

To service its current 1.5 million customers who are spread across 14 States, 30 districts, 15 cities and 600 villages, IDFC Bank has only 74 branches. But it has more than 1,000 points of presence, thanks to 820 micro-ATMs and about 320 business correspondent outlets.

Asked if the 80:20 rule was in operation — that you get most of your profits from fewer customers — and whether the five million lower income and one million affluent customers was a reflection of this, Lall had a surprising take on the issue.

He said so far, it is the mass (lower-income customers) who have been more profitable because the cost to acquire them is lower.

Lall explained thus: “If you have a ₹100 balance sheet and it is theoretically funded fully by deposits, then 10 per cent of customers will give you 50 per cent of those deposits, while 90 per cent of customers will give you another 50 per cent of deposits.

“The cost to acquire that 10 per cent of customers is three to four times higher than the cost of acquiring 90 per cent of customers. That is how it works. So, you break even or become profitable much quicker with the 90 per cent of customers.

“But, although you are profitable there, you are not getting enough deposits from them. So, you have to keep investing to get those 10 per cent of customers who bring the other 50 per cent of deposits.

“But the cost of acquiring is quite high. So, it takes longer to break even on that. That’s how the whole thing hangs together.”

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