IDFC plans IDF, holding company to enter banking

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As first steps towards setting up a bank, infrastructure financing firm IDFC will form a holding company and an infrastructure debt fund to transfer a portion of its Rs 54,522 crore assets that qualify to be added to debt fund.

The transfer of assets will help the company appropriately manage the balance sheet for a smooth transition to a bank. Some of the existing loans, however, will remain on IDFC books as it needs to comply with the reserve requirements of cash reserve ratio (CRR) and statutory liquidity ratio (SLR) from the day one of becoming a bank. Vishwas Limaye, IDFC chief executive officer and managing director, told Financial Chronicle: "We will set up a holding company to comply with the guidelines of RBI. We have to appropriately manage our balance sheet to have some assets on our books and a part of it will be transferred to the IDF, for which we have applied to the government."

IDFC, a Mumbai-based NBFC that got the banking licence on April 2, had a balance sheet size of Rs 70,073 crore at the end of the quarter ended December 2013.

The total loan book of the company is about Rs 54,552 crore, and borrowings about Rs 51,630 crore.

Of the total loans, 75 per cent is infrastructure finance and the remaining treasury and other loans and investments. The average tenure of loans is 4.5 to 5 years, and the liabilities about 3.5 years.

"We have applied for the approval on our own. But we can own only 49 per cent in a debt fund and so in time we will have other investors into the fund as well. Some of the loans will remain on our books as we need to comply with all the reserve requirements of SLR and CRR from the day one," Limaye said.

The total treasury assets of the company are about Rs 9,015 crore and some of the bonds will qualify for SLR. "We will realign our portfolio to meet the bank SLR requirements," said a senior IDFC official who did not want to be quoted.

IDFC had loan approvals of Rs 20,376 crore, up 8 per cent over the

previous year, and the disbursements of Rs 7,659 crore for the

nine-month period ended December 2013.

The government holds 17.24 per cent stake in the company,

Singapore-based sovereign wealth fund Khazana 9.97 per cent, LIC 2.61

per cent and others 70.18 percent.

Morgan Stanley in a report recently said the road from being an NBFC

to a bank is a rocky one to profitability.

Rating agency Fitch group company Ind-Ra expects IDFC's profitability

metrics (FY13 return on assets: 2.7 per cent; return on equity: 14.2

per cent) to drop sharply in the near-to-medium term due to the

regulatory requirements of maintaining 23 per cent SLR, 4 per cent CRR

and priority sector lending of 40 per cent.

Also, operating costs will increase significantly to build up branch

network and employee talent pool. "Maintaining credit costs at low

levels will be important as the company starts lending to

non-infrastructure sectors, while the infrastructure sector is likely

to continue to face a harsh operating environment," it said.

manjuab@mydigitalfc.com

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