)
Financing company IDFC, in the process of transforming into a bank, is keen on raising rupee-denominated offshore bonds (‘Masala Bonds’) if these are permitted and the costs turn out to be a cheaper option.
IDFC had applied to the Reserve Bank of India (RBI) for issuing these about two years ago but had not got the approval. “Recently, the announcement came of corporates being allowed access to these bonds but not for financial services companies. We will once again ask. If we get approval, then as a part of our overall borrowing programme, we would certainly look at that,” said Vikram Limaye, managing director and chief executive officer.
IDFC’s borrowings through domestic bonds are a little over 80 per cent. “One borrows wherever it is the cheapest. We see what objectives are available, what is the term of my assets,” said Sunil Kakar, group chief financial officer.
For transition into a bank, IDFC has already got most of the needed approvals, including of shareholders. Final approval of the high court is awaited. Even so, it has been firm on launch of the bank by the first week of October, with 20-25 branches — corporate, rural and small retail ones.
IDFC was one of two entities which got in-principle approval from RBI last year to start banking operations.
It expects the first half of this financial year to be mostly flat in terms of loan growth. A pick-up is expected in the second half, with transformation into a bank. “As a bank, we will be able to do a lot more products than what we are able to do right now. Right now, we can do only term loans. As a bank, we will be able to do so in areas beyond infrastructure as well. The growth for opportunities is much broader,” said Limaye.
Adding: “Till the transition into the bank, we will keep increasing our provisions, for the simple reason that we want to be adequately cushioned against all known risks. The largest area of concern is the power sector, where our exposure is about 40 per cent of our portfolio. We have said in the past that both coal and gas were two areas of concern.”
IDFC does not want to get into a situation where in the first full year of the bank being operational, it ends up taking large provisions for risks that the company is aware of already. Due to this, for the next couple of quarters, it plans to increase the provisioning.
The net interest margin (NIM) fell for FY15 to 3.4 per cent from four per cent in FY14. “This is largely because we are having a large amount of government securities and treasury assets, which do not generate too much of NIMs. The NIMs would be 3.2-3.3 per cent as we go forward,” said Kakar.
For IDFC the investment banking and broking business has shown a very sharp increase in terms of a pipeline of initial public offers, qualified institutional placements and so on. According to Limaye, if the markets remain stable, that business is expected to do exceedingly well. He also believes the recently begun infrastructure debt fund (IDF) would be a large business for the company. “As the volume of operating assets in the landscape picks up, IDF will be a successful entity for us. We plan to transfer some of our assets there,” he said.
However, IDFC would initially continue to fund its liabilities through the bonds that it has. Going forward, it will largely be on wholesale-based deposits rather than on savings accounts.
