The CEO says: “There have been many adventures over the past few years trying to find a stable landing place, let me say. And I think we’ve found a stable landing spot. And we look forward to a happy marriage from now on.
Shareholders of IDFC Ltd will get 155 equity shares of IDFC First Bank for 100 shares held. What were the factors that led to this exchange rate?
As you know, we have to go through all the statutory processes for this to happen. The basic consideration was the extent of the value of the stake that IDFC Limited shareholders held in the bank. They held almost 264 crores of shares and the shareholding of IDFC Limited itself was around 160 crores of shares. Thus, each shareholder of IDFC Limited effectively transparently owned approximately 1.66 shares of the bank in any event. But then there was a holding company discount and all that, and then there’s a fair process of evaluating those things. So, after fair processes, we arrived at 1.55.
Is it fair to assume that IDFC Ltd shareholders would get a holding company discount as only in India is the discount very high? Overall, this is not the case.
Well, as I said, there are fair processes around these issues. There is a value for the bank, there is a value for this entity. There are market practices, there are precedents. You know, it’s a fair process that you run through independent appraisers, through a fairness opinion by bankers, and so on. You follow the process. The whole thing is that you find a value here, you find a value here, and you arrive at a value. We believe that the whole process was very professional, very smooth, and we are very satisfied with the result which is really fair for all shareholders.
So what will now change for IDFC Bank shareholders in the short, medium and long term once the merger is complete?
Well, that’s a very long question. But let me say that I want to think long and hard. In the short term let me just say there’s no surplus of somebody owning 40% and what they’re going to do with it and there was so much speculation in the market – all of that has gone. Let’s say the speculation is gone. We will simply issue shares of IDFC Bank to shareholders of IDFC Limited. Against 1.66, we will issue 1.55. It’s clean.
In the long run, it becomes a permanent institution because there is no promoter. So think about how ICICI Bank, HDFC Bank, JP Morgan thinks of large institutions with a diversified public shareholding. They grow and grow and grow and grow forever.
I must congratulate you for the courage and perseverance you have shown. It was not an easy merger. The first few quarters were tough, but over the past four to five quarters, IDFC First Bank’s banking business has made a strong comeback. Can I say that the bank and the franchise have just embarked on a multi-year growth journey?
I think so 100%. The real good thing about banking, now that the corporate structure issues are resolved, is that the core of banking will now start to emerge even more for people. In short, the bank has a very good business model, very profitable and very high quality assets. Corporate governance is truly first class. I said on your channel that non-believers would become believers about four quarters ago. Now you’re all going to watch and see what this game, what this bank is going to become. I think it will be really good.
So what’s next for Mr. V Vaidyanathan? You were at ICICI Bank as a professional. You started the NBFC business. Then there was a merger. There is now a merger between IDFC First and IDFC Limited. What’s next for you?
Four or five transactions took place in 10 years, then the merger with IDFC Bank and now this merger. Well now it’s more like settling because now we should expect a very stable accumulation of deposits from the loan book and let me say all the five year adventures of those 10 years are behind We. Let me say that it is more stable performance and stable monitoring over the next decade. I’m looking at a decade ahead and I really believe it’s going to be something.
Can I safely say that IDFC Bank has now settled? As you said, the high growth area you just referred to is real and there are tailwinds both from the economy and from the internal levers that will ensure that the next three years will be better than the last three years?
100%! I have no doubt in my mind. The last three years have seen complex things because we had to deal with complex asset issues after the merger. We had to deal with large amounts like Rs 3,000 to 4,000 crores of bad debts. We have dealt with Vodafone, Capital Dependency, Dewan and all that. From there we fixed the issues and the asset issues went away.
Then we saw the liability issue, the CASA ratio went from maybe 10% to 40%. Next, the liabilities were sorted. Then the profitability issues were resolved. Now we are very profitable with a posted PAT of Rs 2,400 crore last year and you know the trajectory. Let me say that all the elements are behind us. Now even the company’s rationalization is lagging behind. I really think the next three years, yes, you should expect us to deliver much better results.
I’m going to build on your answer that the bank’s corporate structure is now completely simplified. In the general scheme of things, what changes because of this?
Diversified shareholding because there is no promoter once the transaction is concluded. Once there is no promoter, whenever you need capital to raise from the market and hopefully very soon our own internal capital generation will be very strong. It has already touched 12% compared to the figures for the last quarter. Mainly diversified shareholding, large institutional investors, probably even entering the MSCI index. I read a report this morning. It will honestly be a great moment. We look forward to building a great bank.
Can I say that the merger will increase the book value of IDFC Bank and it is on its way to becoming a large cap bank from a mid-sized bank?
Yes, as part of the process, the book value per share for IDFC Bank shareholders will increase by 5%. We will issue fewer shares than we cancel. Therefore, we will issue 16 crores fewer shares. Around Rs 600 crore in cash is also from IDFC Limited. So the short point is the book value per share goes up and that’s an immediate result, let me say. But in the longer term, these things will be forgotten. What we build will stay.
Personally for you, do you feel reassured by this marriage or are you still looking for new adventures?
There have been many adventures over the past few years trying to find a stable landing spot, let me just say that. And I think we’ve found a stable landing spot. And we look forward to a happy marriage from now on.