Finance company IDFC 's shareholders have approved the demerger of its financial undertaking into IDFC Bank. With this approval most of IDFC to IDFC Bank conversion process will be completed. An approval from the Reserve Bank has already come through.
Speaking on the development, Rajiv Lall, CEO & MD of IDFC, said the banking operations will start on October 1 with few branches.
Each IDFC shareholder will get 1 share of IDFC Bank. The current FII holding in the company stands at 48 percent, he said, adding that it will continue to be an important infra player.
IDFC Bank will be the owner of payments bank. It will focus on 3 areas, including wholesale, retail & rural banking and will be a universal bank, Lall said. He expects the total balance-sheet size at around Rs 70,000 crore by October 1.
Below is the transcript of Rajiv Lall's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: Are all approvals in place. When is the effective date of the demerger?
A: The effective date of the demerger will take another month-month-and-a-half. Yesterday we had court approved gathering of shareholders which was a milestone event because we got approval from the shareholders for the demerger scheme. So we are on track.
Sonia: When is IDFC Bank start operations?
A: By October 1.
Sonia: Can you tell us what the holding structure will be?
A: The holding structure will be that IDFC Limited which is the current listed company will be the parent organisation underneath that a non-operating finance holding company the NOFHC which is mandated by the Reserve Bank of India underneath that the listed bank and other three or four subsidiaries that IDFC currently has including the mutual fund, IDFC Alternatives, IDFC Securities and IDFC Infrastructure Debt Fund. So those four subsidiaries and the Bank will set underneath the NOFHC which will sit underneath IDFC and in this whole structure IDFC the parent and IDFC Bank would be listed.
Latha: IDFC Bank's shareholding pattern will mirror IDFC?
A: I believe so yes. So every shareholder in IDFC will receive one share in the bank.
Latha: Give us some idea of how the return on asset (ROA) or return on equity (ROE) of IDFC Bank will look like as on October 1? How much of cash reserve ratio (CRR), statutory liquidity ratio (SLR) it will have to maintain, what will be its assets under management (AUM) or rather its deposit base?
A: We will not have a deposit base on October 1 but we will have a liability base. So what will happen is that substantially most of IDFC's current assets and liabilities will transfer to IDFC Bank.
Latha: 100 percent or is it like 90 percent or thereabouts?
A: About 90 percent -- actually 95 percent because 5 percent of assets will go into the IDFC Infrastructure Debt Fund. 95 percent of assets and liabilities will move to IDFC Bank. So if we have a loan book of about Rs 55,000 crore substantially all of that is close to more than Rs 50,000 crore of loans will move to IDFC Bank as well the corresponding liabilities.
Sonia: Can you tell us a little bit about the foreign institutional investors (FIIs) limit to give us more clarity? I understand that FII holding will be about 23 percent?
A: What happens is that in this structure that I just described to you, IDFC Ltd which is the current listed company will become the promoter/parent of the bank. In IDFC Ltd today we have FII holding of about 48 percent. So since the parent will own about 50 percent precisely 53 percent of the bank and 47 percent will be held directly by the existing shareholders, so the direct FII holding in the bank will be half of what it is in IDFC. So that will be about 24 percent.
Latha: You were telling us about the CRR, SLR requirements, the RoA. First of all, how many branches are you likely to have on October 1?
A: On October 1 we will start with few branches because we have fairly ambitious technology platform that we are introducing. We want to make sure that it is completely stabilised before we start accelerating the pace of branch expansion but we will have five or six branches in tier-I India on day one and we intent to have about 15 branches in tier-VI in India at launch. So total 20 branches day one and then as our system stabilise etc, we will keep expanding.
Latha: Your SLR book is all ready?
A: Yes, the SLR and CRR books are more or less ready.
Latha: How much would that be? I was told Rs 16,000 crore. Is that right?
A: Our total balance sheet size when you add up the CRR, SLR will come to about Rs 70,000, yes, so about Rs 16,000 crore.
Latha: So Rs 70,000 crore is the loan book?
A: No. loan book is Rs 55,000 crore. The total balance sheet size will therefore become over Rs 70,000 crore.
Sonia: Can you give us an estimate of what the balance sheet size could grow to in the next couple of years?
A: That depends on macro and all that kind of things but once we launch operations we should be benchmark to what is happening in the wider banking system.
Latha: What is the distribution of the loan book? Is the entire 95 percent or 100 percent infrastructure?
A: Today most of it will be infra; 80 percent would be infra and over time what will happen is that the share and contribution of infra in relative terms will decline as necessarily we diversify into other businesses but we will remain and important infra player.
Latha: You have a payment bank plan as well, right?
A: We have a payment bank plan in the sense we have invested in a company that has applied for a payment bank. So should that company get payment bank license, we will, as minority equity shareholder IDFC Bank would be a owner in that payment bank.
