IDFC First: Profit Dips 10% but NII Surges - What's Behind the Growth? - video Dailymotion

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00:00 Hello and welcome. We have with us a very special guest, V. Vaidyanathan, MD and CEO

00:04 of IDFC First Bank joining in. Good morning, Mr. Vaidyanathan. It's a very pleasant morning for

00:10 you. It's been a spectacular quarter for IDFC First Bank and like you said to me before we

00:15 got into this conversation, it's actually been a pretty solid year. Deposit growth,

00:20 let's start with that. It's come in at over 40 percent, 42 percent to be precise,

00:24 way above the industry average of about 13 odd percent. What's led to this growth and help us

00:30 understand whether will you be able to keep up with such momentum going into F525?

00:35 First of all, Samina, good morning. Nice to speak to you and your viewers. See, the thing about

00:43 deposits is that since five years at the start of the bank, we have been focused on one thing,

00:49 to put out great products where customers can have a benefit and they can enjoy the product.

00:57 Second is that we have really focused on customer experience. We want to keep hacking customer

01:01 experience both on the internet, the mobile, the branches, the call center, every touch point we

01:07 want to give customers a super experience. So these two things are really helping the bank

01:12 and of course, we become a brand and becoming a brand is a very momentous occasion in anybody's

01:18 life. When you're not much known, then you don't get deposits. When you're known and people think

01:24 of you as the right person, you attract deposits. We are growing, we have 40 percent. Now to your

01:28 question, how does it look like for the next year? Well, I say that we want to grow at least 30

01:34 percent next year. On this base of about 2 lakh crores. So we think it's definitely possible.

01:40 Siveti Nathan, 30 percent, that I think is still going to breeze the street. I mean,

01:46 42 percent or 30 percent, I don't think anyone's complaining. But what has led to this push on

01:52 deposits? Have you repriced your deposits? Is that what has led to you doing much better than some of

01:58 your other peers? Give me a sense of what is pushing growth at this stage. I see last, like I

02:03 said, three, four years we invested in the brand and known. If you think of great banks like the

02:09 well-known big banks, ICICI bank, HTC bank, etc., they are very well known for 25, 30 years. So

02:17 everybody knows them. So our bank was less known. So to build the image of the bank was a very

02:25 crucial moment to get that kind of deposits, number one. Number two, of course, on interest

02:35 rates front, actually, incidentally, for the first 5 lakh rupees, we are paying like the street,

02:41 just for information. We pay up to 3 percent, up to 1 lakh rupees. And above that, we are offering

02:47 7 percent. So because anyway, we're paying fixed deposit, that kind of rate, we might as well

02:51 offer it here. But for the first 5 lakhs, we are like just bang on with the street, with the rest

02:56 of the peer group. Right. Siveti Nathan, credit cost has seen guidance, has seen a hike. You want

03:02 to talk to me about why and what is driving that? See, the good thing about a credit cost has been

03:09 is quite low. You know, for the segments we played, our credit cost is only 1 percent, actually 0.9

03:16 percent, 0.97 percent of the total assets of the bank or 1.32 percent of the loan book, which is

03:25 frankly quite low. And it's been like this. Many people say, guys, listen, your name is so high.

03:31 Can you manage it like this? Well, it has been so like this for 13, 14 years. So we feel that we

03:36 have a unique specialization in the segments we operate. And particularly in rural India,

03:42 we were focusing upon, you know, the asset quality is just so good. You make people in rural India

03:48 just want to pay. They're just more honest or God fearing, God knows. But rural India,

03:52 repayment is superb. And I want to talk to you about your costs, your OPEX. That is one space

04:00 that, you know, you've guided as well for when the second half of FY25, cost to OPEX will come

04:06 down, cost of OPEX will come down. How quickly can we see that? You know, we have said that by Q3,

04:15 Q4, you know, we've been building this bank and building the bank, meaning we have set up branches.

04:21 We took it from 200 to 900 branches. You know, ATMs, we took it from, you know, 150 to 1,100.

04:29 You know, all of these things cost money, you know, we set up, made a really fantastic app,

04:34 even app cost money. So all of these things have been, you know, costing money when building it up.

04:42 But by Q3, Q4, we expect many of the businesses to turn profitable. And therefore, we expect Q3,

04:48 Q4 cost income to come down to the 60s actually. Mr. Vaidyanathan, I want to talk about margins.

04:54 And I know decline there is par for the course, but how much more and for how much longer

04:59 can we see margins ease? Margins, you know, we feel we will be able to sustain it as Amina. We

05:08 don't have a problem with that. It's the nature of a business. So fair to assume that this is the

05:13 range where you will hold margins at for most part of FY25? Yes, yes, you should expect that. People

05:19 should expect it from us. Mr. Vaidyanathan, there are some banks that have gone out and recalibrated

05:23 their unsecured loan growth. Give me a sense of a mix in terms of secured versus unsecured for IDFC.

05:30 And are you recalibrating at this stage? Yes, we are also recalibrating it. We are

05:36 growing more secured businesses like gold loans, loan against property or mortgage loans.

05:43 Working capital backed business financing, property backed working capital for business

05:50 financing, doing home loans, etc. Of course, we're doing that. But, you know, on the unsecured bit,

05:56 you know, we have this unsecured retail financing category, which is the area where even RBI raised

06:02 the risk weights and all that. There, our book is about 15% of the book. And we feel it's very

06:10 moderate and more than that, anyway, moderating. But the important thing is that the NPA on that

06:15 book is really very low. Our NPA on the book is only 1.55%. I mean, the unsecured book and our

06:27 net NPA is 0.38%. And, and it's all backed by cash flows. And cash flows, meaning when we lend,

06:37 we look at the bank account statement account of the customer, we see the money customer has,

06:41 keeps balances of that amount, and then we lend against it, the customer.

06:45 Right. ROAs, Mr. Vaidyanathan, they haven't moved very much. You want to tell me what sort of

06:52 guidance are you setting up for yourself on ROAs for FY25?

06:56 ROA, you know, frankly, the momentous occasion for the bank came when we moved our ROA to 1% plus.

07:05 So last year, we were 1% plus. So we, this year also we were 1% plus. And by the way, if you look

07:10 at large corporations, like even, you know, large state-owned institutions, etc, who have taken,

07:15 or even Indian institutions, private institutions have taken like 15, 20 years to get to these

07:20 numbers, reach there in five years, or five and a half years, from zero five years ago. So even

07:25 this year, we expected to be somewhere in the zone, maybe slightly upward bias. But by Q3, Q4,

07:30 we expect our ROA to open up meaningfully. We expect our cost-to-income ratio to come down.

07:35 We expect our profitability to touch, let me say, you know, with all the caveats of life. We can say

07:43 that we expect to go past the 1000 crore mark in PAT by fourth quarter of this year, probably,

07:50 you know, beat it by a margin. Wow, those are milestones, and I guess, and I hope for you and

07:57 the bank's sake that this gets achieved too. Just one quick last one, when can we expect you to bring

08:02 down deposit rates? We've seen some of your peers do this actually, right, where they had higher

08:07 deposit rates, they tried to build a liability franchise, and now deposit rates have started

08:12 reducing. It seems like it's some sort of a strategy at play for the sector as whole. Is

08:17 that something you're going to be looking to doing as well? See, on liabilities, we already brought

08:23 it down to 3%. We were actually paying, I mean, it's not that I'm very proud about it, because

08:28 you don't make much money from us if you keep savings account for small balances, but with that

08:33 caveat, or rather with that disclosure, the fact is that we're paying only 3% up to 1 lakh and

08:39 we're paying only 4% up to 5 lakh rupees, and most people keep money in these balances, in these

08:44 amounts. So, we are already quite, you know, we're like somewhere there. The thing is that for fixed

08:50 deposits, we are give or take a line with the market, even if like maybe 20, 30 business points

08:55 over the large players. It's only the savings account above 5 lakhs we're paying attractive

09:00 rates, but you know, that's only for people keeping high balances. So, short point is already brought

09:05 it down last year from 4% to 3%. Right. Thank you very much, Mr. Vidyanathan. I would have loved to

09:12 chat with you longer, but we're completely short of time. Good luck. Congratulations. I hope that

09:17 FI25 is as significant and profitable for IDFC Bank as FI24 is spent, and we'll hopefully see you soon.

09:23 Samina, thank you very much for that. But you know, on this front on interest rates,

09:28 I want to actually thank all your viewers also and depositors, who even after we dropped the rates,

09:33 they kept increasing balances with us. That is some amount of trust you're showing in us.

09:38 Yeah, I think Mr. Vidyanathan, your bank has struck a chord, which is commendable, at least at these

09:42 times when it's difficult. This business is becoming more and more difficult as we see it.

09:47 I don't know. I have just no words to thank everybody who are helping us build this bank,

09:51 and I want to thank all our customers and everybody. Thank you. Thank you very much. Thank you so much.

IDFC First: Profit Dips 10% but NII Surges - What's Behind the Growth?

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