The Indian economy did well notwithstanding global headwinds related togeo-political uncertainties in some parts of the world Brexit hiccups rising tradetensions and protectionism slow-down in China and volatile crude prices. India'sfull year annual GDP growth for FY19 at about 7% is impressive in this backdrop. India isalso emerging as an important player in the world economy as reflected in WorldBank's ease of doing business 2019 report which improves India's ranking by 23positions to 77th rank in 2018.
All NBFCs having a net-worth of र 500 crore or more were mandatorilyrequired to adopt Indian Accounting Standard (Ind-AS). Accordingly IDFC Limited("IDFC") adopted Ind-AS from April 1 2018 with a transition date of April 12017 and all entities of the group except IDFC FIRST Bank Limited ("IDFC FIRSTBank" or "the Bank") have prepared financials under Ind-AS. Although IDFCFIRST Bank continues to be under Indian GAAP IDFC FIRST Bank submitted Fit forconsolidation Ind-AS' financials for preparing consolidated financials of IDFC. Theconsolidated balance sheet of IDFC as on March 31 2019 was र 10558 crore and theconsolidated net worth was र 10385 crore.
FY19 was a critical year for us. We undertook a strategic reviewexercise during the year and decided to focus on and grow our retail oriented businessesi.e. IDFC FIRST Bank and IDFC Mutual Fund and exit our non-retail businesses i.e. privateasset management infrastructure debt fund and institutional broking research &investment banking to unlock value for our shareholders. This twin-pronged strategyvis--vis retail and non-retail businesses was shared amongst all our stakeholders.
The fiscal saw the consummation of the merger of erstwhile IDFC BankLimited and erstwhile Capital First Limited giving rise to IDFC FIRST Bank. The mergeralso helped facilitate compliance with the RBI requirement of reducing our holding in IDFCFIRST Bank from 53% to 40% by Oct 18. The licensing condition for IDFC FIRST Bankstipulated that by Oct 18 the holding of IDFC in IDFC FIRST Bank has to be broughtdown to 40% from 53% as on Oct 15. The swap ratio of allotting 139 shares of IDFCBank Limited for every 10 shares of Capital First Limited would have resulted inIDFC's holding in IDFC Bank falling below 40%. To maintain 40% IDFC bought about 12crore additional shares of IDFC Bank from the open market before consummating this merger.
The Bank is well on its course towards becoming a mass retail bankfocused on both retail assets and retail liabilities. Retail assets now contribute morethan third to the bank's funded credit. As on March 31 2019 of the र 110400 crorefunded credit retail was र 40812 crore constituting 37% of total. The retail assets weredistributed across rural SME and consumer segments. The bank plans to grow retail assetsto over र 100000 crore in the next 5-6 years and reduce exposure to the infrastructuresegment as they mature. In the non-infrastructure corporate segment the focus is onpursuing growth based on market opportunities. In 5-6 years the Bank intends to increasethe retail loan book composition to over 70% from the existing 37% which willsignificantly reduce the existing concentration risk in the portfolio.
Retail liabilities is a longer journey and the Bank is committed tomaking the requisite investments to aggressively expand its branch network in largercities and offering attractive price incentives for Savings Accounts ("SA") andterm deposits to retail customers. Of the र 140462 crore borrowings and deposits as onMarch 31 2019 the contribution of retail CASA and deposits was र 13214 crore. With a 7%p.a. rate on SA the focus is now on aggressively ramping up SA. In the next 5-6 yearsthe Bank is focused on increasing the proportion of retail CASA and deposits to over 50%of total borrowings and is targeting a CASA ratio of about 30%.
The urgency for branches particularly to raise liabilities from retailcustomers in larger cities is now visible with branch presence in such cities gaininggreater momentum. With a modest presence in metros when the Bank was launched in Oct'15 the Bank now has 242 branches across the length and breadth of the country. Overthe next 5-6 years the Bank is planning to add another 600-700 branches to substantiallyincrease the proportion of retail CASA and term deposits.
The changing composition of assets and liabilities of the Bank willtranslate into increasing Net Interest Margins (NIMs). the Bank is targeting to enhanceits NIMs from the existing about 2.4% to about 5% in the coming 5-6 years.
The Bank has been consistently acquiring around 1.5 lac customers amonth and now has more than 7 million live customers of which about 3.5 million aresemi-urban and rural customers.
As the Bank is in its investment phase of expanding its distributionnetwork its cost to income is about 80%. In the coming 5-6 years the Bank would haveestablished itself as a mass retail bank with sound profitability metrics i.e. RoA ofabout 1.5% and RoE of about 15% and its cost to income ratio would have come down to about55%.
The Mutual Fund industry witnessed a turbulent year in which majorevents such as regulatory changes impacting future profitability and credit quality ledliquidity contagion threatening debt funds and flows took place. IDFC Mutual Fundwithstood these challenges well and its strategy of investing in a distributionarchitecture to grow its retail investor base and launching new products to bridgeproduct-gaps is playing out well. The coming fiscal will give us a better sense on how theregulatory changes will impact our profitability but we are confident that with the rightinvestments in retail distribution and new products IDFC Mutual Fund is well poised toharvest its fair share in an industry that is growing and is expected to do well.
During the year our average assets under management (AAUM) grew about7% to र 71933 crore. Equity AAUM grew about 15% supported by a growing distributionnetwork which helped steadily build our systematic investment plan (SIP) base and offsetmark-to-market loss with positive net flows. Fixed income AAUM grew 3% overall. Werecovered our non-cash AUM market share while retaining our focus on high qualityportfolios. While the industry saw higher yield (lower credit quality) oriented strategiesbenefiting from higher inflows during the first half of FY19 flows turned sharply towardshigh quality cash-equivalent and short term strategies during the second half. Thisaligned well with our stated investment strategy leading to a sharp increase in inflows.
Building on our existing product suite we launched our overnight fundultra-short term fund and a series of fixed maturity plans (FMPs). We also launched theIndia equity hedge tactical alternative investment fund (AIF) further building on ourliquid alternatives investment platform. We repositioned our banking and PSU fund thearbitrage plus fund (as equity savings fund) and we reopened premier equity fund (nowIDFC multi-cap fund) for lump-sum investments.
More importantly on customers we steadily grew the number of uniqueinvestors we serve by 22% during the year.
We are committed to investing in and strategically growing our assetmanagement business. Our endeavor in this business is to increase AUMs and profits verysignificantly over the next 3-4 years and on the business achieving a certain scale andsize discover its value through options such as an offer-for-sale listing process. We areon track to scaling up this business and our AUM now is closer to about र 90000 crore.
Definitive agreement for sale of IDFC Infrastructure Finance Limited toNational Investment and Infrastructure Fund (NIIF) has been signed. This deal isstructured in two tranches. The first tranche on signing of definitive agreement wascompleted this fiscal leading to our holding in the entity coming down from 81.5% to 30%.The second tranche post fulfillment of conditions precedent is expected to be completedsomewhere in the middle of coming fiscal.
The India business of IDFC Alternatives witnessed the sale ofinfrastructure vertical to Global Infrastructure Partners (GIP) and sale of private equityand real estate verticals to Investcorp.
To sum up FY19 has been a landmark year for us. We will continue togrow our retail businesses. I am proud of our employees who despite the challenges facedhave worked hard to create a strong robust and growing retail platform. I take thisopportunity to thank each one of them for their sincere efforts.
I also thank you - our valued shareholders for placing your confidencein us. I look forward to your continued support.
Independent Non-Executive Chairman