Have to ensure book size is regulatory-compliant: IDFC

A: We continue to be optimistic about the prospects for infrastructure over the medium-term to long-term. There are some issues that remain to be resolved surrounding the power sector which the government is focused on as the fuel related issues on coal -- like the coal block cancellations, there is going to be bidding for coal blocks end of February. So hopefully that will sort out, at least, the coal mine issue where captive coal mines were cancelled by the Supreme Court (SC).

The second issue is surrounding gas again there has been a lot of discussions and apparently a framework that has been developed for - a gas pooling mechanism in order to get the gas plants up and running. So those two are important ones for the power sector to get back on track and that is an important part of the overall sentiment surrounding infrastructure. So we are certainly hopeful that both these issues will get sorted out relatively soon and power sector will be back on track.

In terms of our own performance under the circumstances, it has been quite good. As you know, our loan book has been more or less flat. It is down by only about 1 percent and that is an important thing to remember that while the loan book is flat, it still involves disbursements during the year because there are repayments and prepayments. There are no new projects that have been developed so under the circumstances, remaining flat from a loan book perspective is quite good. Our overall balance sheet size though has increased quite significantly and we are north of Rs 86,000 crore now. That has more to do with the large treasury book that we built on government securities given the transition that we have to make to the bank.

Overall our operating income has increased by 7 percent, which is quite healthy under the circumstances that has largely to do with the non-interest income (NII) having gone up by about 25 percent and is about Rs 900 crore for the nine months.

Our after tax profits are down by about 14 percent at Rs 1,325 crore for the nine months and that has largely to do with provisions because our operating income is up 7 percent and that has to do with what we have been telling the market for a while now that given the issues that we see in infrastructure, we will steadily keep building up for our provisions as we transition to a bank.

Q: On the loan book front that you mentioned, there was a slight, a very marginal decline and that has been the trend, is that something we should expect till you become a bank?

A: What I would say is that for this year, for this fiscal, what we had guided most people to is a flat loan book and that is what we are tracking. As it relates to what the loan book would be at the end of September is a function of what happens with some of these issues that we are talking about. In any event, I don’t see new power projects being developed anytime soon but there could be activity in the road sector, there could be activity in the port sector and that is something that we will participate in. We just have to make sure that our balance sheet transition in terms of size of balance sheet that we have when we become a bank is also managed in a way that we are regulatorily compliant.

Q: Even on the asset quality front, it was slightly worse in this quarter, could you tell us if any particular account that was chunky and fresh slippages that came from this quarter?

A: It is a very marginal increase and our net NPLs are still 0.5 percent. There was only one additional non-performing asset of all of Rs 26 crore. I cannot disclose names but Rs 26 crore is an insignificant amount on a Rs 86,000-crore balance sheet. So I don’t want to belabour that point. Non-performing assets are more or less flat.

Q: Could you elaborate on the margins for IDFC this quarter or for the nine months and also your outlook on that going ahead?

A: Our loan spreads have remained more or less flat. As I said, earlier our treasury book has gone up quite significantly and that has to do with our objective of transitioning to a bank and therefore we obviously are in the process of bank government securities in order to meet the statutory liquidity ratio (SLR) requirements and from that perspective our treasury has therefore increased significantly.

Our overall net interest income is basically down by about 8 percent on the loan front but only 2 percent in total because the treasury NII has also picked up given the size of the treasury. Broadly, spreads will be flat to lower going forward and the reason for that is that we are focused on high quality low risk loans, so by definition those will come at lower spreads. Given the situation in infrastructure and no new projects being developed, you tend to get much higher margins in Greenfield projects if you are focused on operating assets and low risk assets the spreads that you will get will necessarily be lower and we are okay with that because in this environment we want to make sure that we are focused on the right part of the risk spectrum rather than focusing on growth and profitability. We want to make sure that asset quality is intact and we transition to the bank and the bank balance sheet is healthy.

Q: Now that you have an approval from both Reserve Bank of India (RBI) and Securities Exchange Board of India (SEBI), are there any other regulatory compliances that you have to meet before you set up a bank? Are you on target to meet the October 1st deadline?

A: We are very much on target to meet the first week of October deadline to operationalise the bank. We will file our scheme with the high court in the next few weeks. As you said, we have got RBI and Sebi approval, there are a few other things that need to fall into place before we file this scheme but we are very much on track because after we file the scheme it typically takes six months to get high court approval and we are talking about October which is still eight months away. We are well within the timeline in terms of operationalising the bank.

Q: Any capital raising requirements besides this qualified institutional placement (QIP) that you need before October?

A: Absolutely not, in fact our capital adequacy is close to 25 percent. We raised capital in September through QIP only because we had to bring down our foreign shareholding to below 50 percent, not because we require capital. So we certainly don’t need any incremental capital from an equity perspective as I said the bond raising and the debt raising programme will continue based on how we need to transition to the bank.

Q: There were reports of IDFC looking for a tie-up with future group on the payments banks, could you clarify on that?

A: Unfortunately I am not going to be able to comment on any kind of the strategic discussions that we have with anyone in the landscape. If there is something specific that we have to disclose, we will certainly come out with an appropriate press release.

Q: Would you be open to tying up with a partner for a payments bank?

A: I cannot comment on these matters like I said, at the appropriate time if there is something definitive to talk about, we will.