The bank didn’t expect us to move so fast: IDFC Ltd chief

The investor call in September 2021 backfired a bit. Instead of acting as a balm, it annoyed investors even more. I think the board was not well prepared and didn’t read the investor’s concerns and anger. On the one hand, we had a very structural management team, and on the other hand, the board was unable to read the urgency and expectations of investors. IDFC was then run by a CEO who had a retirement and check-out in mind and a skeletal management team looking tired and battered. Then, as a board, we rose to the occasion and got more involved in meeting investors’ expectations.

IDFC’s market capitalization was around Rs. 8,000 crore in December 2021. We have been looking into selling our asset management business and have evaluated several proposals. The process was very transparent. Vishal Kapoor, the CEO, did a great job, even though the markets often felt like it was more of a debt and less of an equity fund. Also, we were aware that anyone we chose had to be a very reputable name, and pay us a good rating. It’s like marrying a daughter. We were very lucky to get the successful bid – Bandhan Consortium. It took us about nine months to get approvals. At the finish line, we faced two headwinds – January 25, 2023, the financial market was rocked by the Adani situation. And on February 1st, the debt plans’ tax arbitrage ended. Fortunately for both parties, we completed the transaction to everyone’s satisfaction. We gave dividends of Rs 11 once we got the money and the total dividend paid out last year was Rs 12. We also recapitalized the bank and brought our stake back to 40 percent.

It took a while to clean up the whole thing and three months back, after the bank was recapitalised, we got into discussions. They didn’t expect us to come so quickly (to talk about merging). It took them some time to understand if we were right and ready. After IDFC’s results were announced in May, our balance sheet was available to them, and in less than two months, we were ready to close the deal. It was just a 60-day process.

IDFC had some cash and 40 percent shareholders in IDFC Bank. If the bank is doing well, we’re doing well. There can be no better fusion where destiny and future are so aligned. There are not many parallels either. IDFC owns Rs 264 crore bank shares and on the basis of IDFC share capital, it owns 1.65 bank shares for every IDFC share. But it is a theoretical calculation, as we have to take into account the market prices of shares, such as widely traded shares.

This is the practice of the market and it is very unfriendly to shareholders in India… that there are such huge discounts to the holding company. And why? Many promoters are blamed for putting up those kinds of structures where they didn’t give the underlying assets full value to the owners. You can’t have a bad structure for investors on the street but good for a promoter. We must move towards abolishing the holding company discount.

Yes, the government will be the single largest contributor.

I think the answer is best given by the bank.

The Government of India has reaped good value from its investment in IDFC. This investment has returned significantly since its inception and we have already paid Rs 12 per share this year in dividends; And given the value of the bank’s shares, I think it’s going to be multi-bag. I cannot comment on whether it will be treated on an equal footing with Axis Bank-SUUTI. But the result is rather good for the government as IDFC First Bank’s largest shareholder.

The IDFC name has great value in terms of brand and customer trust. For a very important bank. Therefore, when the merger is complete, the right to use the IDFC name will pass to the bank.

Yes. But I can’t comment on what happens next. Until merger, it will be IDFC First Bank. After the merger, the IDFC will cease to exist and the name will be deleted from the Registrar of Companies. The bank is free to choose whether or not to keep the IDFC.