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Tag: V Vaidyanathan

  • IDFC FIRST Bank foresees steady surge in profit in next few years

    IDFC FIRST Bank foresees steady surge in profit in next few years

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    IDFC FIRST Bank is confident of clocking a much stronger profit growth over the next five years on the back of a good show in its core operating performance, its MD & CEO V Vaidyanathan has said.

    “Next few years we will be on a very very strong wicket. We believe the profitability of the bank will be much, much higher than today by an order of magnitude. 

    Since you said five years, I can only say that profitability will look much, much stronger because two things will happen. There is a power of compounding that will come into play and the second thing that will happen is that the power of operating leverage will come into play”, Vaidyanathan told businessline in an interview post the announcement of the bank’s Q2 performance.

    Vaidyanathan was replying to a question about the strategic plan for the bank for the next five years and how he sees the profitability growth of the bank shaping up in the coming years.

    Without giving a specific profit growth guidance, Vaidyanathan said he wanted to stick to only long-term guidance as the bank does not guide for quarter after quarter. 

    “We feel very confident that FY24 as a whole will be much better than FY23 as a whole, and FY25 as a whole will be much stronger than FY24 as a whole. And FY26, we feel will be much stronger in profitability than FY25”, he said.

    This trend line of strong growth of profitability year-on-year will be sustained, Vaidyanathan said.

    His remarks are significant as IDFC FIRST Bank had in 2022-23 recorded its highest ever net profit of ₹2,437 crore, higher than net profit of ₹145 crore in the previous fiscal.

    For the just concluded second quarter ended September 30, 2023, the bank’s net profit grew 35.2 per cent year-on-year to ₹751.3 crore.

    Currently, deposits of the bank are growing at 44 per cent, while the loan book is growing at 25 per cent. 

    “If you see the performance of the bank over the last many, many quarters, you will find that it’s very consistent in terms of its approach. 

    The approach is very simple, that we continue to grow, you know, the loan book in a steady manner. Our deposits should grow faster than our assets, that is our fundamental requirement”, he said.

    IDFC FIRST Bank would also continue to keep a laser-sharp focus on maintaining high asset quality all the time, he added.

    “So these are our approach, and in this larger approach, and larger opportunities, it is just another quarter in the process”, Vaidyanathan said.

    He highlighted that the operating profits of the bank have grown by 35 per cent as against loan book growth of 24 per cent. “So long as operating profit grows further than the growth of the loan book, then the bank is becoming increasingly profitable”, he added.

    For IDFC FIRST Bank, deposits have been growing by over 40 per cent for the last many years. “We feel that it can sustain like this for a while. We need deposits for two reasons — Number one is growth and the other one is to fund the repayment of the ₹15,000 crore of legacy infrastructure bonds that the bank is holding (since pre-merger days of Capital First and IDFC merger of 2018). Now those bonds are coming for maturity,” he said. This is the reason why the bank is growing deposits by 44 per cent, otherwise there won’t be a need to grow at this level.

    So going forward, the bank expects the need for deposits will come down in the next 2-3 years (post repayment of legacy infrastructure bonds) and will also permit the bank an opportunity to further reduce deposit interest rates.

    Asked about the net interest margin, Vaidyanathan said that it would continue to hover around 6% plus and there will be no conscious effort to expand it. “We are not looking at expanding it. We are quite happy. This is a good number”, he said.

    Other businesses

    Vaidyanathan said that the bank is trying to build businesses other than retail credit, MSME credit, agri credit and corporate credit. 

    “We are building our gold loan business. We are building the tractor financing business to meet PSL requirements. These are the businesses from a credit point of view,“ he said.

    From a fee income point of view, the bank is building cash management and wealth management businesses, he said.

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  • Use of technology in banking, its obstacles explained by top Indian bank CEOs

    Use of technology in banking, its obstacles explained by top Indian bank CEOs

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    Sanjiv Chadha, MD & CEO of Bank of Baroda, says the usual link between growing the business and growing the physical footprint has broken for all times to come. “The mobile channel is pretty much the bank for sourcing, distribution, and servicing,” says Chadha.

    Chadha gave the example that the public sector bank has grown its business by 35-40 per cent in the last three years, but the number of branches has come down by 15 per cent and staff has not grown at all. “That means enormous operating leverage can be created through technology if you get your act together,” he adds.

    V Vaidyanathan, CEO of IDFC First Bank, says growing credit is easy, but the role of technology is to enable a seamless experience, reach out to underserved people, and help build a quality portfolio.

    Dinesh Khara, Chairman of SBI, says, ”what we see on the face is the customer’s convenience, but there are other elements like the risk and payback period.” Khara was amongst the panellist in an IBA seminar on banking technology here today.

    AK Goel, MD & CEO of Punjab National Bank, touched upon the issue of technology creating ’affordability’ for the masses. IDFC First’s Vaidyanathan pointed out that one of the biggest paradoxes of banking is that the poorer you are, the higher the interest rate you end up paying. “The big role technology should and can play is by reducing the cost of operations at the bottom of the pyramid,” says Vaidyanathan.

    PD Singh, CEO of JP Morgan Chase Bank, says that the foreign bank spent over US $12 billion last year, which is more than the size of many tech companies. “That’s how important it (technology) has become,” says Singh.

    In terms of IT skills and talent, the largest bank has created a new cadre within the bank.

    “We are also hiring IT talent from the market,” says Khara. In fact, the SBI made a senior lateral hire in Nitin Chugh, the deputy MD and Head of Digital Banking. Chugh previously served as the CEO of Ujjivan Small Finance Bank and as the digital head of the private-sector HDFC Bank.

    Chadha says that the technology partner could help you bring a change to the organisation, but embedding the change doesn’t come easily. “That’s where bringing in lateral talent and allowing it to grow is fundamental to that change,” believes Chadha.

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