IDFC First Bank Makes A Dash For Growth With Fresh FundingFebruary 22, 2021
Retail, Retail, Retail
IDFC Bank, which started operations in October 2015, had a bumpy ride in the first few years. The legacy of IDFC’s infrastructure lending past was a weight and attempts to grow retail loans and deposits organically was proving to be a struggle.
After a failed merger attempt with the Shriram Group, IDFC Bank merged with Vaidyanathan promoted Capital First, giving the lender its current avatar of IDFC First Bank.
From the start, Vaidyanathan said the bank would focus largely on retail lending, a business where he spent most of his career while at ICICI Bank.
As of December 2020, retail loans made up 60% of IDFC First’s book, up from 49% in December 2019. The bank’s total loan assets as of Dec. 31 stood at Rs 1.1 lakh crore.
Mortgage financing and consumer loans dominate the bank’s retail loan portfolio, constituting 72% of total retail assets. The consumer loans segment includes two-wheeler loans, used cars financing, gold loans and consumer durables loans, Vaidyanathan said.
“Mortgages will be the bedrock of our growth story. But we would also grow our gold loans, two-wheeler loans, small business financing and rural loans to achieve the 25% yearly growth target,” Vaidyanathan said.
But these are businesses that all large private banks are looking to grow. IDFC First’s relatively higher cost of funds will mean that its asset strategy would need to include riskier lending, said an analyst.
“Considering the higher cost of funds for the bank, it would effectively have to take higher risks in the retail lending portfolio to maintain healthy margins. But the question will be on the quality of underwriting on this book,” said Dhananjay Sinha, director and head- institutional research, Systematix Group. The higher risk may directly result in a higher credit cost for the bank, but the current fundraising plan should address this, he added.