Capitaline

Analyst Meet / AGM 16-Jan-18

Conference Call

IDFC Bank

Retail loan share would jump to 45% on merger, to achieve 60% retail loan target earlier than 2021

IDFC Bank conducted a conference call on 15 January 2018 to discuss the IDFC Bank-Capital First merger. Rajiv Lall, MD & CEO of the bank addressed the call:
Highlights:

As per the bank, the merger announcement is pursuant to bank's stated strategy of retailising its business, transforming into a well-diversified universal bank, improving yield and returns.
The bank believes that there were various complementarities emerging from merger such as diverse customer segment, distribution network, improved profitability and retalisation.
The bank has network of 127 branches end September 2017 and proposes to raise its branch count to 157 branches by end March 2018 spread across 35 cities. The bank also has network of 350-360 business correspondents and 9000 plus micro-ATMs.
Capital First has network of 67 branches and bring host of dealership points of above 2200. The merger is expected to strengthen the touch points and expand to pan India level.
The bank has customer base of 2.2 million, which rising by 1 lakh per month. Capital First brings customer base of 3 million, so the merged entity will have customer base of more than 5 million.
The diverse customer segment is important complement for the merger, which are expected to improve the cross-sale opportunities, particularly for liabilities products.
As per the bank, the timing of merger is crucial as it helps to reduce parent stake in the bank as required by the regulation to 40% by October 2018 from existing 54%.
The IDFC holding in the bank would decline to around 37.5% after merger, while the company would increase it to 40% through open market purchases.
The retail loan book contributed 28% of the loan book of the bank end September 2017. The merger is expected to boost the share of retail loans to 45%, while bank would be in position to achieve its target of 60% retail loan share in loan book earlier than targeted timing of 2021.
The bank cost of funds stands at lower level of 7.5% and is expected to help to reduce cost of funds for Capital First by 110-120 bps on merger.
The bank expects the merger integration process to take 9-10 months for completion.
The improved productivity and efficiency are expected to help continue reducing the cost-to-income ratio for the merged entity, while the investment for growth would continue.
The bank expects the loan growth to be above 20% for merged entity. The bank sees significant scope for margin improvement of the merged entity.
The capital is expected to be sufficient for merged entity for next 2 to 2.5 years.
Post merger, the bank would focus on integration and would go soft on further acquisition in next 12 months.
The bank expects no priority sector lending (PSL) norms drag from Capital First loans book, as more than 40% of their loans are PSL compliant.
The stressed asset ratio for the merged entity is expected to be lower.

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