IDFC First Bank raises Rs 2,000 crore from marquee investors

Private sector lender IDFC First Bank has raised nearly Rs 2,000 crore via a preferential issue from marquee investors namely IDFC, Warburg Pincus, ICICI Prudential Life Insurance, Bajaj Life Insurance and HDFC Life Insurance.
The fundraising would help create capital buffers to absorb future shocks if asset quality takes a hit due to Covid-19 related pressures.
IDFC (Rs 800 crores), ICICI Prudential Life Insurance (Rs 600 crores), have subscribed to a majority of the Rs 2,000-crore preferential issue. Balance being invested by Bajaj Life, HDFC Life and Warburg Pincus in equal proportion.

IDFC First Bank parent IDFC will maintain its 40% stake.
Meanwhile, lender will strengthen its common equity tier 1 or CET1 ratio above regulator requirement. As of December quarter the lenders CET1 stands at 13.28% and post preference issue it will rise to 15%.
IDFC Bank and non-banking finance company Capital First combined after the collapse of a $12-billion merger deal between IDFC and Shriram Group — one of the most ambitious M&A deals in the Indian financial services industry — in late 2017. Some minority IDFC shareholders sought better pricing after Shriram offered Rs 60 apiece for the parent and around Rs 48 for the bank.

IDFC First Bank, formed in December 2018, led by Capital First’s V Vaidyanathan. Interestingly, Vaidyanathan, who had earlier led ICICI Bank’s retail business, was also the CEO of ICICI Prudential before the management buyout of Capital First with Warburg Pincus in 2012.
The RBI expects the parent IDFC to retain 40% in the bank for five years. The banking licence granted in the second half of 2015 is nearing the five-year-old threshold.

The management plans to grow total funded loan book to Rs 180,000 crore augmenting its retail asset book from Rs 40812 crore in FY19 to over Rs 100,000 crore in the next five to six years thereby reshuffling the asset mix in favour of retail to 70% from 37% currently.

For customer acquisition, the bank is targeting 70 lakh customers (40-45 lakh live customers) of CFL in initial stage offering wide range of banking product and services on the liability side. In addition,
CFL’s tie up with 10,000 dealerships (60% converted to IDFC clients) offer clientele for CA deposits
The management has aimed at CASA ratio to reach 30% over the next five to six years and further aims to touch 50% in the long run.

Further, the bank is targeting contribution of CASA & retail term deposit to touch 50% of total liabilities.
In order to build sustainable deposit base, the bank plans to adopt aggressive expansion and frontload branch addition. Accordingly, 600 branches are to be added in the next five to six years taking total branch count from 242 in FY19 to 800-900 ahead
The bank had inherited Rs 44000 crore book from IDFC Ltd with stress loan of Rs12000 crore accounting for 27% of the inherited book.

Over the years, the bank has been able to reduce the stress on that book with effective sale to ARC & providing adequately. Out of Rs 12000 crore bank has sold loans worth Rs 6800 crore to ARC, Rs 2600 crore became performing while on remaining Rs 2800 crore 80% has been provided.

The total provisions since inception has been Rs 6500 crore on total infrastructure stress of Rs 9400 crore.
Restructuring of balance sheet underway has continued with increase in run rate of low cost deposits. Raising capital is positive for the bank as it instils confidence.
The bank had reported a net loss of Rs 2,504 crore for October-December period of 2018-19. The bank has provided 50% for the legacy stressed telecom account which led to losses.

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