IDFC Bank, India’s youngest bank, grabbed attention when on July 12 it announced the acquisition of microfinance firm Grama Vidiyal. In May, it had similarly surprised everybody, including the RBI, when along with partners Telenor and industrialist Dilip Shanghvi, IDFC Bank withdrew from setting up a Payments Bank. The move reportedly irked RBI which had toyed with the idea of levying penalties in such cases, to discourage future drop-outs. MD and CEO Rajiv Lall clears the air in an interview with Beena Parmar.
What was the reason for opting out of Payments Bank?
You see, Telenor, one of our significant partners is re-evaluating its strategic footprint in India. So that was one factor. Likewise, (our other partner, industrialist) Dilip Shanghvi was also reviewing the competitive landscape that a Payments Bank would unveil in India, re-visiting his earlier plan for such a bank. We had been planning to put together a business plan in the light of what we learnt about the competition as it began to unfold. I would say a combination of all these reasons led us to not pursue.
Given that backdrop, are you open to more partnerships?
We are open to any kind of partnerships including for a Payment Bank. Never say never! For a new bank, it is all about partnering in intelligent ways with founders and business leaders, like Grama Vidiyal’s Mr Devaraj (founder S Devaraj), or in a transnational way like partnering banking correspondents or other start-ups or fintech companies. We are very much looking forward to it.
What was the reason for the acquisition of Grama Vidiyal?
The customer segment (for the MFI) is growing very rapidly, the complexity is very low and it’s a very clean book, compared to lot of other bank books. The people, management, their vision and alignment with the vision, is good. So also is the quality of the customer and assets base.
IDFC Bank is India’s youngest bank. What are the challenges that you are facing after setting up the bank?
It is all in the execution. You have to build from scratch and now it is building on that momentum. We were on a consolidation mode and are now going across all customer segments - business banking, corporate, diversification into new suite of products, different customer segments in retail, there are a complete set of services such as secured, unsecured, wealth management, trade and finance that are functioning now. To top it, there are also four channels which we are working on – salaried or professionals, digital, banking correspondents and branch.
What is the status on the IDFC holding structure? Has IDFC Bank approached RBI to dissolve the structure?
We are exploring (that option). The latest banking guidelines say the non-operative finance holding company, is not required as it is an unnecessary layer which only compounds the problem of the holding company discount. So we want clarity on that…that the same set of rules are applicable to all banks, including the new lot. Hope something emerges so that it can reduce, if not eliminate the problem of the holding company discount in the coming months. The problem is that you have a parent company which is listed, which owns the bank which is also listed, and in between there is another holding company that RBI wants. So if you are a shareholder of the parent, you are two levels removed from the bank… so people are not getting value. So each time a dividend is given, you lose in taxation, there is leakage and you lose value by the time you get to the holding company. It should be constructive for the share price of the parent company.
What are your expectations from the new governor of RBI?
(Whoever comes in) will have to deal with the asset quality problem. They have to make sure that the new institutional arrangement of MPC (monetary policy committee) framework is operationalized. That the responsibilities such as debt management, office etc, are sorted out. Then the new governor will have to worry about, rather focus on the biggest challenge that even we as IDFC Bank are trying to address, which is, how do you nurture, motivate the formal banking system to serve a much deeper and wider base of customers amid technology and competition.
What is retail growth plan for IDFC Bank?
The retail book today must be Rs 3,000 crore. Adding Rs 1,500 crore (through the acquisition of Grama Vidiyal) it will be Rs 4,500 crore. Our goal is to reach Rs 14,000 crore by March 2017… Total retail book would be a fifth of our total book at about Rs 4,000 crore and this would then be increase to 25% of the total book size.
In terms of geographical presence…?
We are pretty much across the nation now. We are in all metros, Madhya Pradesh, northern Karanataka, Andhra Pradesh, Meghalaya, Tripura and with this (Grama Vidiyal) we will be in the hinterlands of Tamil Nadu, Kerala, Karnataka, Maharashtra. The gaps will be the northern plains of Uttar Pradesh, Bihar, Haryana, Punjab.
Do you see more inorganic growth?
Possible. But making an inorganic acquisition is not easy as it is as much a factor of luck as it is of focus. So if something presents itself and it makes sense, we will go ahead with it. But we will continue the organic growth.