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00:00It's a banking day and amongst other things we also caught up with Mr. V. Vaidyanathan.
00:04He is the Managing Director and CEO of IDFC First Bank.
00:08Let's hear out his view on Q1 earnings and more importantly the outlook for FY25.
00:17Last quarter when we were announcing results we called out the fact that there were floods in
00:22Tamil Nadu and there will be some there will be an impact on the books but we had kept the
00:26amount open because we were still evaluating it. So basically we have a microfinance business
00:34where you lend to groups of borrowers and as a joint liability group. So we have the business
00:41that's about a 13,000 crore book for us. 60% of that is in Tamil Nadu. So in Tamil Nadu the
00:46massive floods so people at the bottom of the pyramid usually get impacted when these floods
00:50happen. So you know we have a policy of just taking it everything as they come and we have
00:56disclosed it and we've taken the provisions for that. But it doesn't disturb fundamentally the
01:01core story of the bank and all that. All that is safe. This is one part of the pie. Would you say
01:07this is a blip for the first quarter or do you see the impact sort of flowing into the
01:11second quarter as well? It will flow because as the portfolio ages and moves to the later buckets
01:18you know there will be certainly an impact next quarter also.
01:23Then Q3 it will taper off and by Q4 it will vanish. Is that why you kept the credit cost
01:32guidance tight at 1.65? Is that why? That's right. So basically we are quite happy that
01:38the rest of the book is really very strong. It's like 94% and that's like very very good.
01:46Even this 6% it's not that it's like completely blown up or anything like that. It's just that
01:50it has its share of cycles. So let me say Q1, Q2. Q3 is a little more impact. I mean some and then
01:59the Q4 hopefully it will just you know wane away. And then we have guided 1.65 for the full year
02:06excluding JLG and for JLG we have set 20 basis points. But frankly 1.85 in today's credit
02:12conditions is a good number. Yeah. Related to that you know you have seen this across lenders
02:18Q1 looking a little elevated on the asset quality front. Just tell me do you to your mind as a
02:26banker do you see that maybe the years of months and quarters of sliding gross NPA maybe that's
02:33sort of over and that we have to be okay with this is the level at best which the industry
02:39can operate at this maximum efficiency? No I don't think so. I like to put it like this. So
02:43basically the normalization of credit will happen. Normalization means until last year we were
02:49having an NPA but we're having a recovery from the past pools. So this time all there's no such
02:55recoveries because the you know the books have whatever had to be recovered have broadly been
02:59recovered. So let me call it normalization of credit and that's what is happening. But of course
03:05we should always be very watchful. But there's nothing fundamental here that has got disturbed
03:11either for the system or anything like that. Okay. A couple of questions around the around
03:16your core business. Now advances and deposits growth both have been strong on a YOY basis. Even
03:22QOQ they're looking quite good. Tell us a little bit about what the rest of the year is going to
03:28look like on these fronts. So our deposits have as you know have grown 39 percent YOY. I think
03:35it's really a strong number and it's been running like this growing like this for five years at a
03:41stretch. So it's not even a one-time event happening to us. More importantly it's largely coming from
03:46retail. So that gives us that extra comfort. So this year for rest of the year we are planning
03:53to grow it at 30 percent as in when you wake up in March 2025 and checking is March 2024. We expect
03:59to have our own deposit by 30 percent. It should not be difficult when growing at 39. On the loan
04:04book we will be growing somewhere around 20, 22 percent in line with the guidance. So you know
04:10to grow 20, grow that at 30, the credit deposit ratio will further come down. It is our biggest
04:16objective to keep improving our credit deposit ratio. On a period end basis I think it's close
04:23to 100 percent if I'm not wrong your credit deposit ratio. Where do you want to see it?
04:29What is the healthy level for you? First of all the good news that come below 100
04:36like 99 something and the context is very important. You know it was when we did the
04:42merger because at DFI converting to a bank we started at 160 percent. If you add credit
04:49substitutes like lending to a corporate is also lending only. If you add that to credit it's like
04:54160 percent. It's now come down to below 100 percent. Now one year forward M25 we think like
05:01something like around 92 percent. A year after that come to 80, 87, 88 percent. So within
05:08two years will be you know the pace at which this has got fixed is really something to watch.
05:15A quick question. And the incremental credit deposit ratio for the last one year,
05:1912 months has been just 75 percent. Right, right. Okay, I want to take the naming question
05:28next. Now there's been a contraction on a QOQ basis expected because you know you're seeing
05:36higher deposit growth and thereby more interest expenditure that is happening on every bank's
05:42portfolio. But do you think that maybe this is the bottom or is there further sliding expected?
05:48Just a small correction there from your understanding point of view. Sure. It's not
05:52because the deposits are growing. It's more because the fact that our bank also had made
05:59certain investments in government bonds because we had excess liquidity and that was a good sort
06:06of you know it was making an extra income for us. That was a position our bond traders had taken.
06:13So that is why the NIMO's affected a little. But I know it's still at about 6.3 percent
06:20or 6.25 percent. I think it's a good number. We expect to roughly give or take sustain it
06:26for the rest of the year. Okay and lastly with regard to the LCA framework that the RBI is
06:31proposing at this point in time. It's a draft framework of course. Is there likely to be
06:36pressure because analysts seem to suggest that your bank would be one of the ones that would
06:40be hit if these guidelines do come in from 1st April? I think you know maybe analysts put it
06:45out but they didn't. I'm not sure what extent of research they did. I respect them but I think
06:49I'll tell you the share numbers just for simplicity and that will clear the air.
06:56Under the new framework if we were to assume it comes into force we think that the impact
07:04for us will be like two or three basis points which means that to retain a healthy LCR you
07:09will need about 10,000 crores worth of deposits and 10,000 crores or so and for that we'll probably
07:18borrow them. The differential between the rate we'll borrow is what we'll have to deploy in
07:23government securities or like at about 6.7 percent. That difference is about 70-80 basis points.
07:30That 70-80 basis points multiplied by 10,000 crores should be about 70-80 crores.
07:35Not like for a large bank posting the kind of profits that we expect to post next year.
07:40It's not, we'll take it comfortably.