In an interview to CNBC-TV18 on the sidelines of an IDFC conference in London, CFO Sunil Kakkar says, provisioning has been done for up to 50 percent of the stressed book, largely in the infrastructure space, on its legacy books.
IDFC Bank has made requisite amount of provisioning on its stressed asset book, says CFO Sunil Kakkar highlighting that there is unlikely that any further provisioning will be required even if there is an asset quality review by the Reserve Bank.
In an interview to CNBC-TV18 from the sidelines of the IDFC conference in London, Kakar said provisioning has been done for up to 50 percent of the stress on its legacy books, largely in the infrastructure space.
On expansion plans in the rural and semi-urban areas, he said the bank is not looking only at traditional branch-based expansion but also leveraging other mediums like bank-in-a-box or micro-ATMs which provide access to these markets without necessarily having a branch there.
Below is the verbatim transcript of Sunil Kakkar's interview with Anuj Singhal and Ekta Batra on CNBC-TV18.
Anuj: You had recognised Rs 800 crore as stress in the book. Till when will you take hit on earnings?
A: It is correct that we had some stress on our legacy book, which is in the infrastructure sector. But as you would know that we have already taken provisions against the same, we are provided almost 50 percent against our stress book and we believe that level of provisioning is more than adequate.
Ekta: Can you update us about asset quality review (AQR)? We have heard decisively from all the banks. What about IDFC Bank?
A: We have just become a bank and there has been no inspection from the Reserve Bank of India (RBI). Having said that, we on our own, before even the regulator has come and inspected, have taken a significant level of provisioning on our stress book and hence we are well provided for and do not expect any other additional provisioning requirement, even if an AQR were to be done today.
Anuj: What is the possibility of removal of the holding company's structure and can you throw some more colour on that?
A: Recently there has been a draft document for discussion by RBI, which is mainly for the new banks. Assuming that there is a level playing field, all I can say is that this provides us an opportunity for a constructive dialogue with the RBI and let us see how it proceeds.
Ekta: As per RBI guidelines, once your restructured books falls into a non-performing asset (NPA), you have to make provisions from the date of restructuring. How have you provided in this regard and how much is pending?
A: As I mentioned in the beginning, all loans, whether there are restructured, NPA or even beyond that, that is, they are showing some initial stress levels, we have already identified them as a watch list and taken adequate level of provisioning which at a portfolio level is almost 50 percent. So we don't need to make any additional provisions.
Ekta: Some of your peers -- Bandhan has made around 21-22 percent current account/savings account (CASA) with rural and semi-urban focus. You also have a rural as well as semi-urban focus. What is the plan for expansion in terms of branches in these regions?
A: Bandhan transformed from a microfinance institution (MFI) to a bank, whereas we transformed from an infrastructure finance company to a bank. So they already had a large geographical footprint. We are starting on that journey. We have almost 45 branches operational in the rural area.
Going forward, the world is changing, branch necessarily is not the only measure of providing access and financial services to the customer in rural and semi-urban area. We have a different strategy which is leveraging some partnerships for banking correspondents and we, through a bank in a box, what we call a micro ATM, will access a large number of customers in the rural and semi-urban areas without having a branch presence.
Ekta: You have less experience in retail lending. How tough will it be for you to compete with the likes of Ujjivan and the Equitas?
A: Sure, everybody has to start someday. Retail is our focus area. It is our vision to become a mass retail bank in the next 4-5 years. We are very focused, so we have recruited experts in that area. We have set up systems and models, which allow us to do retail lending at a very fast pace. There are credit scoring models, so all the technology and the skill set has been built and overtime, we will become a mass retail bank.
Ekta: Are we seeing any sort of recovery or upgrades in your existing infrastructure book?
A: As we have been mentioning earlier, we have made the provisions. It is a bit too early to think of recoveries. Although, I can see steps being taken in the right direction, I expect another 3 or 4 quarters before we can confidently say that the past is behind us and recoveries can be recognised on the books.
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