IDFC First Bank’s CD ratio may come down to 90-92 percent by end of FY25, says CEO V Vaidyanathan

V Vaidyanathan, MD and CEO, IDFC First Bank

IDFC First Bank’s Credit-Deposit (CD) ratio is likely to come down to 90 percent to 92 percent from the current levels by the end of the current financial year, said managing director and chief executive officer V Vaidyanathan in an exclusive interview with Moneycontrol.

“Our CD ratio can come down to say 90-92 percent by the end of this financial year. Our strategy is very simple, grow credit less than deposits. Our incremental CD ratio has been quite low after the merger,” Vaidyanathan said.

The CD ratio tells us how much of the money banks have raised in the form of deposits has been deployed as loans.

Currently, the bank’s CD ratio stands at 98.4 percent as at the end of FY24, as compared to 107 percent a year ago.

Its incremental CD ratio is at 76.2 percent as of the end of FY24, as per the bank’s investor presentation.

Further, on the Rs 1 crore penalty imposed on the bank earlier this month due to the sanction of a loan to a PSU company, Vaidyanathan said that it was an infrastructure project financing loan given to a Karnataka PSU company somewhere in 2016 or 2017.

“The account is fully paid, there is zero NPA and zero exposure,” he said.

Edited excerpts:

How much growth did IDFC First Bank see in FASTags after the Paytm Payments Bank issue?

We did not go after anyone’s base, but still, organically itself, the incremental volumes went up significantly. On the acquiring side, we were acquiring at 550 toll plazas, which has gone up to 650.

Also read: IDFC FIRST Bank Q4 profit falls 10% to Rs 724 crore on higher provisions

Most banks have seen higher G-sec investment, can you tell us about IDFC First Bank?

We like to focus on the core business, treasury is not budgeted as a key revenue item for the bank. We try to play super conservative on the treasury front because we don’t want to book any mark-to-market losses. If something positive comes through without taking much risk, it is welcome. Our approach is that when you have a core business that generates well, you should not do punting.

How much borrowing will you do in the next quarter or in FY25?

We don’t have a borrowing plan for the quarter, but it is for the year. We feel that interest rates could come down somewhere after October and for the rest of the year, and that time would be a proper time to raise the bonds.

The borrowing of Rs 5,000 crore will be for the second half of this financial year.

Where do you see your CD ratio by the end of this financial year?

Our incremental CD ratio is at about 76.2 percent, which is frankly the lowest in the system. Our bank is commanding goodwill in the market, which is bringing this kind of deposits, say 40 percent plus, to the bank.

Our CD ratio can come down to say 90-92 percent by the end of this financial year. Our strategy is very simple, grow credit less than deposits. Our incremental CD ratio has been quite low after the merger.

We expect our deposit base will grow by around 30 percent in the current financial year.

Our brand has become quite strong and well known. The brand attracts deposits. This is a huge moment for us, to become a brand which customers seek out. We can see 30 percent growth in FY25, we need it as we are planning to repay the legacy bonds as well.

How much infrastructure financing will remain of your total book by the end of this fiscal?

Now, our gross NPA percentage of 1.88 includes infrastructure loans. Excluding infrastructure, our NPA is only 1.5 percent. Whatever is left now has now become a very small part of the book now, but by the end of this financial year, it will become more insignificant.

Also read: Why are banks charging 1% fee on utility payments using credit cards?

Earlier this month, the RBI imposed a Rs 1 crore penalty on the bank for sanctioning a loan to some PSU company. Which was that company and what was the issue?

It was an infrastructure project financing loan, given to a Karnataka PSU company somewhere in 2016 or 2017. The account is fully paid, there is zero NPA and zero exposure. The issue here was that the appraisal process and capability to repay included some budgetary allocations, meaning the repayment was predicated by the state government making budgetary allocation for repayment, which was not permitted. The account is closed, and anyway we don’t do infrastructure project financing loans for five years now.

What is your outlook on overall growth and profitability?

We are more focused that this sort of asset quality should sustain. Our gross NPA should be at 1.5 percent and net NPA at 0.4 percent. Keeping this quality, we will grow 20 percent plus.

On the profitability front, we have reported a PAT of Rs 2,957 crore, which is a growth of 21 percent over FY23. If we exclude trading gains from profit, then our core profit has gone up by 28 percent this year. Things are looking good for the next year, profitability will be more pronounced in the last two quarters of FY25. Our cost to income will come down into the 60s and the ROA (return on assets) will go past 1.3 in our estimates.