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Capital First brings with it the retail experience that IDFC Bank was looking for long. The non-banking finance company has built up capabilities that are strongly complementary to the bank, V Vaidyanathan, founder and chairman of Capital First Ltd, tells Anup Roy. Edited excerpts:
It’s a big day for you...
Yes, very, very big day for us as well as IDFC Bank.
IDFC Bank has a legacy problem and wanted to grow out of the problem through aggressive acquisitions. Will the strategy change now under you?
In the last five-six years, at Capital First, we have developed some really fantastic capabilities for small entrepreneurs in every nook and corner of the country, and through some technological capabilities. And on that basis, we have now developed a Rs 23,000-crore loan book through five million customers.
That capability is what we are carrying into the new institution. And therefore, with that capability, and IDFC Bank’s banking licence, it becomes a terrific combination. We have built a very good capability to originate and manage retail loans, but we didn’t have banking licence. They have a banking licence, and they have a terrific infrastructure and wholesale financing book. So, two of them put together is entirely complimentary.
What will be your strategy in the bank? The bank wanted massive retailisation ...
We should focus on the larger picture. The larger picture is how to create value for our customers on the basis of a banking platform. We think in that sense, a number of products that we can offer to our customers would be much larger, the product suite can be more and the balance sheet of IDFC Bank is more diversified because of the retail presence. So, yes, that would be the bigger part of the strategy.
Which are the opportunities you want to tap?
The Indian economy is poised to grow again at a good pace, there are opportunities all around.
What happens to the holding company structure post-merger?
It doesn’t get affected.
How will you leverage your retail lending experience on the deposit side?
We can cross sell to customers who have loan accounts with us. Similarly, the proposition for the customer will be more complete now across liabilities and assets.
Are key shareholders of both companies on board?
Both entities will submit the proposals to their respective shareholders. We are confident that they will see the value and synergies.
Given the past performance, financial metrics as well as future prospects, it seems that Capital First could have still managed to grow faster and profitably (than the merged entity). Do you think, the merged entity would be able to replicate the current performance and financial metrics of existing Capital First?
We can now accelerate the growth because we will have access to an even larger and diversified funding base in the form of savings accounts and deposits. This is the main benefit. The capabilities to lend will continue to improve over time.
In the past, your larger peers (Bajaj Finance, Shriram Transport) have been reluctant to apply for banking licence given the compliance, etc. What made you go for the deal?
We have always said that a banking licence creates a perpetual institution as it has access to low cost, and more importantly a stable liability base. That was the key criteria.
How long will it take to close the deal, including getting permission from shareholders, regulator, etc? If you could provide the timeline?
The process may take six to nine months depending on regulatory approvals.
What could be the key challenges for the merged entity?
I focus on opportunities and this merger provides this amply.