The chairman and MD Capital first, V. Vaidyanathan, talks about synergies expected from the merger with IDFC Bank in a interview. Excerpts:
What are the synergies you see behind this merger?
This is extraordinarily synergistic for all parties. To become a bank was part of the original thinking for many years. We had made a public comment in the past that having a banking licence gives access to a low-cost, stable funding base.
From IDFC Bank’s point of view, there is a very high quality retail originating capability being acquired by them in this process. That is, a skill has been added to IDFC Bank. So, to that extent I think it is very good for everybody.
Capital First is an NBFC and has certain operational flexibilities unlike a bank which operates in a highly regulated environment…
I think this is probably a misunderstanding. Because, NBFC as a platform is very well regulated by the Reserve Bank of India (RBI). In retail lending, the difference is not in regulation but basically in the availability in the low-cost funding base.
One of the biggest challenges for IDFC Bank is to mobilise deposits since it is a new bank. How do you plan to address this?
In India, we have a high savings rates. I am sure once we put up the right proposition in terms of branch network, a composite proposition for the customer then we would be able to raise deposits for growth.
What will be the branding post the merger?
We will work [things] out on this front.
After IDFC’s deal with Shriram group fell through, Rajiv Lall, MD & CEO of IDFC Bank, had said the bank has a drag on profit of ₹600 crore every year mainly due to fixed rate bonds which cannot be repriced or retired before 2021. This was creating a drag on the Return on Assets. How will this merger address the issue?
We are more focused on how we can create value. We believe that a strong bank platform, coupled with a strong retail lending franchise, becomes a great value-creating model for all shareholders. So, [regarding] the finer details about how much drag etc, I cannot comment on at this stage.
Private equity firm Warburg Pincus has a stake in Capital First. After the merger, what will its stake be?
Now Warburg Pincus has a 36% stake in Capital First; [this] will come down to about a little more than 10%.
What will be your immediate priority after taking charge as the MD and CEO?
The merger process will take anywhere between 6 and 12 months for getting all the regulatory approvals. Once the process comes ends we would be able to articulate the strategy. Right now, the macro strategy is that the retail portion of Capital First will add great value to IDFC Bank and the banking licence of IDFC Bank will create great value to Capital First.