Top IDFC plans to keep its loan book flat in FY15 as it works out a route map for becoming a bank in eighteen months. Company chairman Rajiv Lall said that they will have to conserve capital to build up the mandatory cash reserve ratio and the statutory liquidity ratio which all banks have to maintain with the Reserve Bank of India.
Speaking about the challenges with The Indian Express, a day after RBI gave his infrastructure financing company an “in-principle” nod to become a wholesale bank, Lall said that further expansion of lending in FY15 will be difficult.
“We need to create room for the RBI requirements. So, our infrastructure loan book will be flat next year,” he said. As on March 31, 2013, IDFC has a balance sheet of Rs 71,059 crore, of which its loan book was 80 per cent at Rs 56,595 crore. The loan book had risen by 16 per cent year-on-year. In the stock markets, on Thursday, as the scale of the reprising that the firm will have to do became apparent, the stock price which had risen 8.71 per cent to Rs 139.15 in the morning surrendered the gains and ended at Rs 124.95, down 2.38 per cent at the BSE. At the NSE, the company stock settled lower by 2.43 per cent at Rs 124.70.
RBI mandates a cash reserve ratio of 4 per cent and an SLR of 23 per cent, which together would mean creating space for Rs 16,000 crore even at the current level of business. Since the RBI also mandates that scheduled commercial banks have to provide 40 per cent of their loan to the priority sector, primarily agriculture and small scale industry, Lall agreed that his bank would have to rework the loan book drastically soon. “But you will notice we have already begun moving out of only infra loan to other sectors so we don’t expect much of a problem, there”, he said.
Established in 2005, the IDFC model is built on wholesale borrowing from financial institutions in the country and abroad and lending to infrastructure projects after booking a profit margin.
Lall said that this will have to change to a deposit led model with branches as IDFC moves to set them up across the country. He said the growth will be organic for now and there are no plans to buy out any other banks to jump start the process of branch expansion.
The other challenge for IDFC will be to set up a non-operative financial holding company to run the proposed bank, the IDFC chairman said. This is something that has not been tried out in the Indian banking sector till now but the RBI has made it an essential part of the new bank licence issuance programme.
IDFC, along with Bandhan Financial Services, were the only two firms that have got RBI approval on Wednesday to set up banks from a field of 25. In a filing with the stock exchanges IDFC noted that the approval will be valid for a period of 18 months. Until a regular licence is issued, the applicants would be barred from doing banking business.