Credit rating agency Standard & Poor's today said rating on IDFC is not immediately affected by its getting licence to make a foray into commercial banking but warned of short-term challenges and dip in its profitability.
The top infrastructure finance firm and Kolkata-based micro-finance entity Bandhan were yesterday granted banking licence by the Reserve Bank of India (RBI).
"In our view, the move (licence) will improve IDFC's asset diversity and funding profile in the long-run. However, its expansion outside traditional expertise in the competitive banking sector has significant short-term challenges.
"Execution of its conversion strategy, including the final corporate structure and capital, will influence its credit profile," the global agency said in a late evening note issued from Singapore.
RBI has given three options to NBFC to carry out banking operation. One of the options is to convert NBFC into a bank.
S&P has a BBB-/A-3 rating on IDFC currently and has retained the same, saying the credit rating can be changed only after a meeting of its relevant committee.
Stating that IDFC's funding is weaker than that of established banks in India, the note said the licence will help IDFC access stable retail deposits and low-cost current and savings accounts "which will reduce the company's reliance on wholesale funding and also funding costs".
IDFC's profitability may moderate in the near-term due to higher operating costs to establish a retail brand, branch network and to adhere to regulatory norms on cash reserve ratio, statutory liquidity ratio and priority sector lending, the rating outfit said.