IDFC Bank to rely on technology over branches for retail operations

Infrastructure finance company-turned universal bank, IDFC Bank on Thursday said corporate clients will continue to be its profit centre in the initial years and reliance on branches will always be minimal.

Having made excess provisions for its infra assets, executive vice-chairman and managing director Rajiv Lall expressed confidence of clocking a profit growth of up to 15% in the first few years.

"We will focus on technology and are confident of serving the same number of customers with a 10th of the branches as other banks in due course of time," Lall told reporters here while unveiling the logo of the new bank and introducing the top management team.

On October 1, it will formally kick-start operations with 23 branches and 15 of those will be in three districts of Madhya Pradesh, which has witnessed handsome performance in the farm sector, Lall said, adding that total branch network will grow to 60 by December, of which 40 will be in rural areas.

He further said that the bank will not focus on the branches for distribution but will instead rely on technology to get consumers.

The RBI picked ISAC and micro-lender Bandhan from among over two dozen entities to start universal banking services, in April, 2014 after a gap of over 11 years.

Bandhan Bank, which started operations in August, is focusing on physical network and had 501 branches at launch.

Lall said IDFC will continue to rely on the wholesale and commercial banking verticals which serve corporates, for profits, and personal and business banking and rural banking, for retail customers.

In a five-year timeframe, the bank expects the share of wholesale and commercial banking in profits to go down to two-thirds, while the remainder will come from personal and business banking, coupled with rural banking, he said.

IDFC Bank will tap into lending opportunities beyond infrastructure to grow its book.

Lall said the bank will clock a profit growth of up to 15% every year and will have 15 million customers by the fifth year of operations. 

The top management of IDFC Bank, which got introduced on Thursday and comprises talent drawn from foreign lenders and domestic ones like Yes Bank, said a bulk of IDFC's infra assets will be passed on to the bank, and given the issues with the sector, it is making a provision of Rs 4,500 crore for assets which may potentially turn bad.

Lall said IDFC had already taken a decision to provide Rs 2,500 crore and the board will meet again soon to make more provisions, so that bank is insulated from asset quality woes.

He said the loan book of the bank on Day 1 will be Rs 55,000 crore and the overall stressed assets, including non-performing assets and restructured advances, will be under 15%.

Even after the 18-month relaxation given to meet priority sector lending norms, Lall said IDFC Bank is unlikely to meet the same and penalties for the shortfall have already been accounted for in planning.

Bandhan and IDFC were given licenses after almost 10 years and Lall today termed this as a "scarcity or a drought" during which many things have changed on the ground.

Lall said the bank has done a market survey where customers said they hate bankers who do not treat them with respect and dislike banks for pushing products rather than service institutions.

He said learnings from these have been incorporated into IDFC Bank, which will be an "un-bank" or a "hatke" (different) bank doing business in an unconventional way.

Lall said unlike the new-age private sector lenders like Yes Bank and Kotak Mahindra Bank, which pay saving bank depositors a higher rate to increase the share of the low cost Casa deposits, IDFC Bank will not offer a higher savings rate.

The bank has already started 12 branches in Madhya Pradesh's rural areas, he said. 

A bulk of the investments are going into people, who have been drawn from Bank of America Merill Lynch, Citi, Yes Bank, ICICI Bank, IndusInd Bank, said Lall, adding that in next five years, it aspires to get the cost to income ratio to be 30% lower than the best bank.

Identifying the ability to build institutions as a strength, he said IDFC Bank will be focused on organically building its businesses rather than acquisitions.

He said the upcoming small finance banks and payments banks are not a threat as many of the companies awarded licences are focused in the urban areas.

The bank also announced its board of directors, wherein former home secretary Anil Baijal has been appointed the non-executive chairman and the directors include former CAG Vinod Rai (who will replace Lall as non-executive chairman of the holding company).

Others include economist Ashok Gulati, former World Bank executive Gautam Kajim, former Kotak Mahindra Bank hand Ajay Sondhi, ex-CFO at Citi India Abhijit Sen and micro-lending specialist Veena Mankar.

Vikram Limaye, the managing director and chief executive of the holding company, IDFC Ltd, will also be a nominee director on the bank board.

He will head a small part of the business, which will include post-construction loans, an infra debt fund and other subsidiaries for asset management, private equity etc.

It also unveiled its logo made up of four hues, representing various characteristics unique to our country.

The holding company, IDFC will own 53% of the bank and the rest will be with IDFC Ltd's shareholders, its chief financial officer Sunil Kakar said, adding that the bank will be listed on the exchanges in early November as a separate entity after a de-merger process.

IDFC shares gained 1.45% to close at Rs 140 apiece on the BSE, as against 0.16% rise in the benchmark Sensex.