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The existing shareholders of IDFC Ltd, which is in the process to set up a bank, will directly own 100 per cent shares in the bank as well as in IDFC, according to Rajiv Lall, Executive Chairman of IDFC.
Earlier this week, IDFC received an “in-principle” approval from the RBI to set up a bank.
As a listied entity, IDFC has several subsidiaries with IDFC Alternative, IDFC Investment Banking and IDFC Asset Management Company as the three most important subsidiary companies.
According to Lall, as per the planned transition over 18 months, a non-operative financial holding company (NOFHC) will be created under IDFC.
“Our existing subsidiaries will become the subsidiaries of NOFHC. And the bank will become the fourth new subsidiary of NOFHC. The bank will be the only subsidiary that will be listed on day one. And the asset that currently resides in the IDFC balance sheet will move to the balance sheet of the bank.
In addition, with a foreign holding of about 53 per cent, IDFC plans to dilute it below 50 per cent getting domestic investment through preferential allotment, making it into a domestic-owned bank.
After getting the approval to open a bank, Lall said, “As an NBFC, we have been allowed to provide only narrow suite of products to our clients. As we become a bank, we will have the opportunity to provide range of product to our existing clients such as cash management, foreign exchange services etc.”
He further added that as the company becomes larger (into a bank) “the risk of funding our balance sheet increases on the wholesale basis. Therefore, it is important for us to determinately build a depository franchise”.
Lall refused to share the upcoming bank’s business and growth plans, though maintained that it may undergo a reduction in profitability as it grows over the next three years.
Earlier this week, Mumbai-based IDFC and Kolkata-based Bandhan Financial Services received an “in-principle” approval from the RBI to set up a bank.
Over the 18-month period, IDFC will transfer most of its assets to the bank.
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