IDFC has structural issues after demerger, says MD & CEO

Company in talks with RBI to look at possibility of doing businesses that are compliant with norms

IDFC Ltd is in talks with the Reserve Bank of India (RBI) to look at the possibility of doing businesses that are in compliance with regulations, senior officials of the company said.

Addressing shareholders in the annual general meeting (AGM) here on Wednesday, Vikram Limaye, managing director and CEO of IDFC, said the drop in the company's share prices is due to "structural issues" arising from the demerger of its financial business into IDFC Bank.

Currently, IDFC Ltd is not allowed to do any lending activity. It would continue to evaluate investments and new businesses that make sense, but that would be in the context of subsidiary businesses the company might be setting up.

"We have a structural issue in terms of two holding companies beyond the operating subsidiaries we have. From shareholders and market perspective, that results in a holding company discount. The holding company discount that we have seen in the market today is something higher than what any of us expected," said Limaye.

He told the shareholders that the stock price was higher than the combined stock price of IDFC and IDFC Bank put together. A large part of it has to do with the structural issues, considering that the underlying businesses have not changed. IDFC Bank will contribute 80 per cent of the value to consolidated IDFC Ltd and the trading characteristics of IDFC Ltd would be largely determined by the bank's performance going forward. The trading characteristics of IDFC Bank would play a role in the share price of the holding company, Limaye said.

Vinod Rai, former Comptroller and Auditor General of India and an independent director of IDFC, said that the company already showed a 30 per cent increase in the first quarter of 2016-17.

"No company will publicly declare the immediate corporate plans, due to regulator issues and corporate intelligence. Whatever business is feasible, as permitted by the regulator, will be done. Corporate plans are being worked on," he said. He added that no holding company by itself has shown profits in the first year.

Limaye said the holding company also made an upfront provision of around Rs 2,500 crore in the first half of last financial year to insulate the bank from any negative impact on profitability on account of the demerger.