Home loans are our main driver and they will continue to grow: V Vaidyanathan, MD & CEO, IDFC First Bank

IDFC First Bank is replacing higher cost borrowings with lower cost borrowings and working on branch level profitability to reduce its cost to income ratio, Managing Director and CEO V Vaidyanathan told Shritama Bose in an interview by e -mail. In FY23, the bank will focus on increasing profitability, he says. Edited excerpts.

You have guided a 20-25% growth path. What do you think will lead to this?
It’s simple. Home loans are our main driver and they can continue to grow. We are starting from a small base in the context of India’s size, and in India, 22% growth from a small base is not a big deal. We have strong credit reporting capabilities across all of our businesses. We are also developing our wealth management, cash management, business solutions and deposits. All of these can comfortably grow 25% from our base. And our capital adequacy is 16.8%.

How will you generate the deposits necessary for this growth?
Last year, despite lower interest rates on savings, our average daily CASA (Current Savings Accounts) rose from 41.5% in FY21 to 49.5% in from exercise 22. I hope you will agree that this is really something. So raising deposits is not a problem for us, we have proven that. People trust our brand. We need to raise more current accounts. We are going to do that this year. We must ensure that our branches manage comprehensive customer relationships across assets and liabilities.

Will the quality of the assets of the last quarter be maintained?
It will get better. We no longer have any old wholesale issues to disclose. In fact, we expect recoveries from a toll account that is already an NPA (non-performing asset). In retail, the SMA (special mention accounts), which is in the pre-NPA stage, has come down a lot, so our flow to the NPA will be weak. In retail, our gross NPA fell from 4% in March 2021 to 2.6% in March 2022. The net NPA fell from 1.9% to 1.1%. In addition, the provisions decrease each quarter. In the last quarter, the annualized provisions are only 1.2%. Individuals tend to repay when they recover their cash flow, whether after demonetization, IL&FS or Covid-19. In India, office scores are a big issue.

There are concerns about your high cost-income ratio of 77%. How do you plan to reduce cost versus revenue?
This is the start-up phase of this bank. Other banks have been around for 25-30 years, or unlike us, were already profitable when they got the banking license. We will soon be repaying 25,000 crore loans that cost us 8.8% a year and replacing them with less than 5%, which will reduce the cost of income. Our credit card business will break even within two years. This will reduce the cost relative to the revenue. Our branches will become profitable as we increase our responsibilities. This will reduce the cost relative to the revenue. Last year, it went from 84% to 76%. This year, it will drop again. So the cost of income will decrease every year from here. Our focus on technology will also help.

What is the main focus for FY23?
Profitability. We’ve covered assets, asset quality, deposits — everything. Now it’s all about profitability. It will happen from this year. You will see a big increase in profit in FY23. Our operating profit grew from Rs 1,900 crore in FY21 to around Rs 2,700 crore in FY22, a growth of 44%. We expect another similar jump in earnings in FY23 and… in FY24 as well. This is the rate at which profits are growing in our bank. One day, you will suddenly realize the potential of our bank.

Your credit card and gold loan books have taken a big leap. What is the reason for the increased focus on these segments?
We just launched it. We love these companies. We have given cards to our existing customers, the quality has been very good and we have no DSAs (direct sales agents). Our credit card features are very user-friendly.

Will you do project financing, given the opportunities that are opening up?
No.

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