IDFC First Bank is being built on strong unit economics: V Vaidyanathan, MD & CEO 

Sustainability comes from two aspects. Retail deposits are key to building a bank and deposits are growing by 40 per cent per annum. Our deposits are at Rs 1.93 lakh crore. The second part to building a universal bank is making the ship stable. We are building a corporate banking business that not many people know much about, and we’re doing solid cash management business. Our wealth management already has AUM of ₹16,000 crore, and is growing at 60 per cent, and we also have NRI and forex trade, which a universal bank should have. 

Don’t start any of these things as non-negotiable. What is non-negotiable is having a good culture, never breaking the law, customer trust and having customer-first products. Margin is a byproduct of how you build business. The key strength of the bank is to get retail deposits at scale, and a loan book of a high quality. If we keep building it in a disciplined manner in the next 5-10 years, without playing any false or cross-batted shots, then this is the elixir that will deliver good and consistent returns.

Not hitting fours and sixes, and playing the singles and twos continuously, over a long period of time. One of the fundamental disciplines we have is that credit should grow less than deposits, and not using borrowings to grow credit. We have achieved this for five years. We have guided for a gross and net NPA of two per cent and one per cent, respectively. Our internal plan was to keep it below 1.5 per cent and 0.5 per cent, respectively. The third important thing is to have cutting-edge technology. Even if there’s pressure on the P&L or other short-term pressures, we will keep building the fundamentals right. 

We’ve been building all the things we talked about - for example, a really good app, cash management services and wealth management services. We offer a tractor loan and gold loan business. In FY25 we expect the rate of growth of expenses will slow down, and income will rise faster than expense growth. By Q3 and Q4 of FY25, people will get to see the benefits of our investments. 

I admit and no doubt about it. But we are building a bank for the long term. This year our cost-to-income has plateaued and will soon start dropping. An important thing to note is that in five years, our loan book has grown at a CAGR of 13 per cent, while operating profit has grown at 40 per cent. This has been possible because of strong incremental economics. If you have a bank with a strong fundamental unit economics, and keep scaling it, the bank becomes profitable.

You should see higher than normal growth in rural lending, gold loans, loans against property, and tractor loans; basically, loans that will give PSL capabilities and which are relatively more secure with reasonably good yield. 

Our retail unsecured loans are 15 per cent of the total book, of which 6 per cent is salaried personal loans, 6 per cent digital personal loans and 3 per cent credit cards. Except credit cards, all lending is backed by cash flows. When we say cash flows, we analyse bank statements of account for 6–12 months and look for cash balances. The loan sanction terms are such that the EMI is within the cash in bank, and are fully backed by debit instructions from the customer. We don’t do unsecured loans without PDCs or debit mandates. Our unsecured portfolio is comfortable at a gross NPA of 1.5 per cent and net NPA of 0.38 per cent.

Our total corporate book is 16 per cent, of which large corporates is 1 per cent, emerging corporates 6 per cent, financial institutions 8 per cent, and infrastructure financing 1 per cent, which in due course will go away. The book is largely composed of non-funded book, with large corporates rated A and above. In the initial five years, we were winding down the book, but we now believe that we can start growing in a stable manner. It is a good business to do, which can also lend stability, trade forex, forex remittance, salary accounts of employees, etc.