Our provision numbers will fall to just 2%: CEO, IDFC First bank

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IDFC First Bank expects the govt to stop a duopoly within the telecom sector, MD & CEO V Vaidyanathan tells Shritama Bose. The lender expects its credit costs to decline over the years. Edited excerpts:

Loan growth has been anemic for the entire industry for a short time now at 5-6% levels. you’ve got grown at 9%. what’s driving that?

The important thing is, we started mortgages, which were the most important driver of growth. A quarter ago, we cut interest rates on savings accounts from a record high of 6% to 50%. So, we quickly became competitive in the Prime Home Equity Credit category.

Q1 was a difficult quarter for collections. Are you seeing a pullback thereafter?

After mid-June, we see a better recovery within the collections. Prior to February 2020, the collection level was 98.8%, and by July 2021, early bucket collections had risen to 99.4% … which is why our provision numbers are down 2% from the front.

Retail distress has risen in Q1 mainly due to lower collections. Could the distress be more entrenched for a few households?

If not, how did our early or current bucket collections reach 99.4% after the second wave of Covid? This affected the cash flow of the customers and they respected the times when their cash flow came back.

There is concern around a telecom company that’s not stressed but has sent out rescue calls to the govt. How are you handling that exposure?

We believe that the Government will try to come up with some solutions to keep it as a viable industry for India. We were transparent about this account; We have already identified this and there is already a provision of `487 crore in this account. So, theoretically, to imitate, even if we charge 100% of the total fund exposure of Rs 2,000 crore, our capital adequacy will still be very strong at 14.7%.

What is the profitability outlook?

The bank’s all-time core pre-provisioning operating profit doubled to Rs 601 crore after the crescent merger. Despite the growth of 400 branches, 600 ATMs, 12,000 employees, credit cards, payroll accounts, fast tags, fleet cards, technical layer manufacturing, and retail liabilities of Rs 50,000 crore.

But there are too many issues in infrastructure?

Yes, that is the nature of any infra Development Finance Institution. It is Diwan or Reliance Infra or this telecom, they are all legacy businesses. No new corporate account has been booked on SMA1 in the last two and a half years.

This change from DFI took a long time.

You ask Mr. Kamath, how difficult it is, he is the only person who turned DFI into a bank. We still carry infrastructure and other past loans of Rs 27,500 crore, where we repay 8.6% and save Rs 1,000 crore per annum by using sub-5%. That’s why it takes time. But once done, it can be a great institution.

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