The bank’s foundation was strengthened in last four quarters, says V. Vaidyanathan, MD & CEO, IDFC First Bank

V. Vaidyanathan, Managing Director and CEO, IDFC First Bank, talks about the March quarter results, retail portfolio and liquidity of the bank, and provision need amid moratorium whose period has been extended by 3 months during a candid chat with Swati Khandelwal, Zee Business. 

Edited Excerpts:

Q: IDFC First Bank’s has managed to post good numbers in the March quarter. It has posted a year-on-year profit of Rs 72 crore in March quarter against a loss of Rs 218 crore posted a year ago and there is an improvement in asset quality. Can you tell us about the factors that added to your profitability and help you in improving the asset quality of the bank?

A: The main reason is our engagement in strengthening the bank’s foundation for the last four quarters. At the same time, we are also growing its retail business that led to an improvement in the net interest margin (NIM). Thus a strong foundation has been created and the bank’s profitability will grow gradually. As far as this quarter is concerned, then our total income (a combination of the net interest income (NII) and fees) in the corresponding quarter of the last fiscal was Rs 1,423 crore and it has increased to Rs 1,995 crore in this quarter. Thus there is an increment of around Rs 500 crore in the core earnings. It is very strong positive and from there the profit was created after slashing the expense and credit loss. 

Q: What is your outlook for the retail portfolio and do you think that this momentum will continue in future quarters as well?

A: NII (Net Interest Income) is largely boosted by retail loans and helps in improving the margin. So, our combined Net Interest Margin (NIM) which stood at 3.03% last year in the same quarter has increased to be 4.25% in last one year. Thus, this is a strong net interest margin despite providing a 7% interest rate on saving accounts to the customers’. This has brought core stability in the bank. As far as maintenance of stability is concerned then it will depend on the economic outlook. Our retail disbursement has decreased amid the coronavirus problem and had remained almost zero in April and May due to the lockdown. Thus, we will remain a little slow for the next 3-5 months after which will take-off as every problem gets solved at the end. The corona problem will also get solved and the story of growth will come back.

Q: Let us know about the liquidity position of the bank and do you have any fundraising plans in future?

A: Our liquidity position is very strong. Deposit growth, which has been good between January and March, is one of the key strength of our bank. It has increased because our products and services are good and there was an expansion in our branch infrastructure. Even the employees are quite motivated. Thus, everything is good at the bank. This led to the strengthening of the core capital in the quarter that remained challenging due to corona crisis. The retail deposit of the bank grew by around Rs 4,600 crore in the quarter. The CASA and the retail deposit has grown 167% in the last one year. Retail deposit and CASA of the bank has grown by Rs 20,000 crore in the last one year. This is a strong number and it helps the bank in diversifying its deposit base and stabling itself. It also brings a confidence that we can take deposits worth Rs 20,000 crore annually from the market and we can lend further. Thus, the fundamentals of the bank have turned very strong by now.

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#RoadToRecover | IDFC फर्स्ट बैंक ने तिमाही नतीजों में पेश किया शानदार मुनाफा, कारोबार को कहां से मिला सहारा और लोन मोरेटोरियम से फायदा या नुकसान? जानने के लिए देखिए बैंक के मैनेजिंग डायरेक्टर & CEO वी वैद्यनाथन की खास बातचीत। SwatiKJain IDFCFIRSTBank pic.twitter.com/awNhTfYgJy

— Zee Business (ZeeBusiness) May 26, 2020

Q: RBI has increased the moratorium period by another three months. Do you think that this step will lead to some extra provisioning? Also, talk about the bank’s asset quality and what impact this moratorium will have on it?

A: As far as the moratorium is concerned, we have provided it liberally to most of our customers and haven’t stopped anyone from using it. It has been provided to every retail customer who has asked for it. In case of the rural customers, who don’t understand English or can’t fill their moratorium application through the internet has been provided 100% and we have asked them to start the process of paying the instalments after three months. The facility has been offered to rural customers based on their application. The moratorium has been provided to 45% customers of the bank. Earlier it was granted to 50% people of which around 5% have paid the instalments despite moratorium was offered to them. As far as their behaviour is concerned then the RBI has given three more months for the moratorium. If the lockdown comes to an end in this period and the businesses are back to normal, while the customers will not have to pay the instalments to the bank in this period then they will increase the cash balance at the customers' end. I think cash balance will be available with the customers when the instalments will start in September.

Q: Will it require extra provisioning, if yes, then tell the kind of levels that can be seen in it and its impact on the asset quality?

A: Moratorium is a good thing and it will improve the asset quality because people will get time to get revenues to pay. As far as provisioning is concerned then I think the regular provisioning that is undertaken quarter-on-quarter will continue to happen. It will be done to establish the probability of the customers that may default when this period will open after three months. But, I think that the bank’s fundamentals have has turned reasonable strong.

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Q: You are adopting a strategy that is moving towards a linear model and cost rationalization. What is your outlook in terms of employee strength, job cut and salary cuts, even you have taken a 30% cut and the senior management has taken a 10% cut? How are you planning to carry out your operations in terms of manpower and hiring going forward?

 A: The purpose of taking a salary cut of 30% cut at the personal level and 10% at senior management level is broadly representative. If you have a look at the market than you will find that everyone's income has come down may he is a person who is selling coconut water or tea. There is nothing wrong if our income reduces by 30%. It is fair only as we are participating in this process a little. It also helps in osculating measures like expense cuts at the bank. Then right at the top if I can establish that if I can take a 30% cut then people at the organisation also become more conscious about spending any other money and the bank becomes more efficient.