We aim for total non-performing assets (NPAs) of 2% on a long-term basis: IDFC First Bank’s MD and CEO, V Vaidyanathan

There is a lockdown situation in 20 or so cities around the country. Mobility is impacted, as are many companies. The entire effect on both teams would be evident only in the next one or two quarters.

We are designing our risk parameters for this and believe we will fulfil this guideline following the Covid second wave provisioning. IDFC First Bank’s MD and CEO V Vaidyanathan told Shritama Bose that the bank plans to use its current account savings account (CASA) base to penetrate the prime segment of the home loan industry. According to him, the bank expects 1.5% of its client base to profit from the current turnaround proHome Loan in Covid-19gramme through UPI Payment.

What was the reaction to the first restructuring framework revealed last year? Do you anticipate that more borrowers will qualify for the new scheme now that it is available?

We restructured 0.9% of our book at the time. Again, it is difficult to predict how many individuals will qualify for the new scheme. This second wave is sending contradictory messages. On the one side, it seems to be a difficult one to work with. It is not, though, a nationwide lockdown. Manufacturing and exports, for example, are already going. Since the signals are combined, the effect will be visible just one quarter from now. Our best guess is that about 1.5% of the consumer base would profit from this, but that is only a prediction.

The savings rate has now dropped to 5%. Will rates be sustainable at this stage?

We have a CRISIL F AAA rating for our FD (fixed deposit) scheme, which speaks to our reliability. Customers want safety, and our savings rates remain very competitive. Furthermore, we have a strong name, an industrial feel, and excellent customer service, so we believe our deposits will continue to rise. Our current goal is to use the low-cost CASA to begin lending in the prime home loan market. Reduced funding costs and a focus on home loans is a watershed moment in our bank’s history. Now that we’ve laid the groundwork for the next two years by establishing a solid CASA foundation, it’s time to expand the loan book. Previously, our expansion was driven by SME and customer financing. Our gradual growth has now reached a plateau.

The whole industry seems to be shifting away from unsecured loans and into secured goods. Will banks from doing unsecured loans entirely, at least for the time being?

You get to go on a long ride with the buyer when it comes to home loans in particular. It presents you with peace of mind, and your asset quality would be high. There is a larger shift in the market now toward secured lending and debt.

How have the risk models modified in the aftermath of Covid?

We strengthened lending conditions for sectors impacted by Covid, such as travel and leisure, restaurants, and so on. We lowered LTV (loan-to-value), authority levels, bank balance eligibility conditions, and the cut-off score for obtaining the loan. As a consequence, the post-Covid incremental bookings already account for the pandemic-affected businesses. We are now adding a prime home loan section as well to improve asset quality from here on. Our asset quality will directly be improved irrespective of the impact of the second wave. 

What is the credit quality recommendations?

Before Covid, we had gross NPAs of around 2.6%, net NPAs of 1.2%, and arrangements of 2.6%. With our new underwriting expectations and patterns, we believe we are on track to achieve a gross of 2%, a net NPA of 1%, and requirements of 2% on a sustainable basis. We are modelling our risk parameters for this and will fulfil this advice following the Covid second wave provision.

 

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