IDFC Ltd/IDFC Bank (Special sit/spin off India)

[MrB]

India is currently cleaning up its banking system and the banks are broadly bifurcated between the PSBs (public sector banks) and private banks with the former being under reserved (my opinion) and selling for less than book and the latter good balance sheets selling above book to over 4x. IDFC Ltd belongs in the latter category, but is priced like the former.

 

IDFC Ltd (Infrastructure Development Finance Company) is an extremely well run entity that was one of two successful applicants for a universal banking license out of 24 applicants in 2015. IDFC capitalized IDFC Bank, put up a very large reserve, launched and spun off 47% of IDFC Bank to investors in Nov 2015 resulting in dumping of IDFC Ltd.

 

Today you can buy a ridiculously overcapitalized bank (5x levered) at less than 80% of book via the holdco (IDFC Ltd) and get the rest for free (another 20% at least).

 

If you're still reading then I highly recommend you start with the following presentation by the CEO of the bank, Rajiv Lall.

 

 

 

[oddballstocks]

Is this available to non-Indians and non-hedge funds?

[arcube]

India is currently cleaning up its banking system and the banks are broadly bifurcated between the PSBs (public sector banks) and private banks with the former being under reserved (my opinion) and selling for less than book and the latter good balance sheets selling above book to over 4x. IDFC Ltd belongs in the latter category, but is priced like the former.

 

IDFC Ltd (Infrastructure Development Finance Company) is an extremely well run entity that was one of two successful applicants for a universal banking license out of 24 applicants in 2015. IDFC capitalized IDFC Bank, put up a very large reserve, launched and spun off 47% of IDFC Bank to investors in Nov 2015 resulting in dumping of IDFC Ltd.

 

Today you can buy a ridiculously overcapitalized bank (5x levered) at less than 80% of book via the holdco (IDFC Ltd) and get the rest for free (another 20% at least).

 

If you're still reading then I highly recommend you start with the following presentation by the CEO of the bank, Rajiv Lall.

 

 

Do you have the ticker number on BSE?

[rohitc99]

IDFC ltd is not a bank - its an NBFC (non banking financial company). There is a difference as it cannot raise deposits directly from retail. Also the capital ratios for NBFC are higher and hence leverage is lower.

IDFC is more or less a holding company now with asset management and other operations on the side, but the main asset is still the holding in IDFC bank which was demerged in oct 2015.

 

Typically in india, such holding companies have usually traded at a discount to their SOTP with the gap rarely narrowing.

[MrB]

IDFC ltd is not a bank - its an NBFC (non banking financial company). There is a difference as it cannot raise deposits directly from retail. Also the capital ratios for NBFC are higher and hence leverage is lower.

IDFC is more or less a holding company now with asset management and other operations on the side, but the main asset is still the holding in IDFC bank which was demerged in oct 2015.

 

Typically in india, such holding companies have usually traded at a discount to their SOTP with the gap rarely narrowing.

 

What is the leverage of IDFC Bank? Can IDFC Bank raise deposits?

 

[rohitc99]

IDFC ltd is not a bank - its an NBFC (non banking financial company). There is a difference as it cannot raise deposits directly from retail. Also the capital ratios for NBFC are higher and hence leverage is lower.

IDFC is more or less a holding company now with asset management and other operations on the side, but the main asset is still the holding in IDFC bank which was demerged in oct 2015.

 

Typically in india, such holding companies have usually traded at a discount to their SOTP with the gap rarely narrowing.

 

What is the leverage of IDFC Bank? Can IDFC Bank raise deposits?

 

yes IDFC can raise deposits and has a capital adequacy ratio of 22% versus a normal 14-15% for most other banks. so as you noted, its very under leveraged.

 

There are however differences in banking in India v/s NA. for starters, banks in india have to lend to priority sector (dont recall the exact %) like agriculture etc which has lower margins and returns. IDFC bank has to hit this threshold by 2018 and will have buy some of this portfolio which could lead to lower ROE for now

 

also there is a mandate to open branches in rural areas by RBI which IDFC bank is pursuing aggressively. so between the priority sector lending, cost of startup and opening new branches, the ROE is likely to remain below 10% for 2-3 years. A 10% ROE in indian context is sub par and usually a bank having this level of profitability will not sell above book value (eg the PSU banks).

 

The bank and its stock price should do well over a 3 year time period, but less likely to see the valuation gap close in the short term.

 

 

[MrB]

IDFC ltd is not a bank - its an NBFC (non banking financial company). There is a difference as it cannot raise deposits directly from retail. Also the capital ratios for NBFC are higher and hence leverage is lower.

IDFC is more or less a holding company now with asset management and other operations on the side, but the main asset is still the holding in IDFC bank which was demerged in oct 2015.

 

Typically in india, such holding companies have usually traded at a discount to their SOTP with the gap rarely narrowing.

 

What is the leverage of IDFC Bank? Can IDFC Bank raise deposits?

 

yes IDFC can raise deposits and has a capital adequacy ratio of 22% versus a normal 14-15% for most other banks. so as you noted, its very under leveraged.

 

There are however differences in banking in India v/s NA. for starters, banks in india have to lend to priority sector (dont recall the exact %) like agriculture etc which has lower margins and returns. IDFC bank has to hit this threshold by 2018 and will have buy some of this portfolio which could lead to lower ROE for now

 

also there is a mandate to open branches in rural areas by RBI which IDFC bank is pursuing aggressively. so between the priority sector lending, cost of startup and opening new branches, the ROE is likely to remain below 10% for 2-3 years. A 10% ROE in indian context is sub par and usually a bank having this level of profitability will not sell above book value (eg the PSU banks).

 

The bank and its stock price should do well over a 3 year time period, but less likely to see the valuation gap close in the short term.

 

 

Ok, let's just keep the metrics consistent otherwise it confuses the argument.

 

yes IDFC can raise deposits and has a capital adequacy ratio of 22% versus a normal 14-15% for most other banks. so as you noted, its very under leveraged.

The leverage for IDFC, using the metric I originally referred to (financial leverage or Assets/Equity) is just under 5x and for Axis Bank, Yes Bank, HDFC Bank, etc it is 10x. The basic point being that leverage is a simple lever to pull in order to increase ROE.

 

There are however differences in banking in India v/s NA. for starters, banks in india have to lend to priority sector (dont recall the exact %) like agriculture etc which has lower margins and returns. IDFC bank has to hit this threshold by 2018 and will have buy some of this portfolio which could lead to lower ROE for now

NA banking is irrelevant to this discussion.

 

Let's keep the following in context. IDFC is an existing business with a great franchise (infrastructure lending) that is going through a transition that will end up increasing the quality of the franchise even further, because it will lower cost of funding and increase cross selling the way that Macquarie does it. This will be achieved by the launch of the bank, which is the focus of the comments below, but don't lose track that you have an existing infrastructure lending business, asset management business, alternatives and securities business, that are chugging along just fine despite the depressed environment for infrastructure lending. However, we are arguably at the cusp of an upturn in the infrastructure investment cycle; Umesh Revankar of Shriram Transport Finance said in last week's conference call that they are clearly seeing infrastructure projects taking off and in March infrastructure output expanded at its fastest pace in about 1 1/2 years http://www.vccircle.com/news/real-estate/2016/05/02/india-infrastructure-output-growth-jumps-march-slumps-fy16

 

So generally speaking don't let talk about the bank let one lose sight of the big picture. For IDFC the most immediate issue determining ROE is the infrastructure investment environment.

 

Turning to the bank, IDFC Bank started life with INR 462 Bn ($7Bn) of loans, mostly to corporates in infrastructure. The strategy is to build deposits, by on the one hand a) converting existing borrowers to depositors (easy), on the other hand b) build Bharat Banking (poor/rural/PSL), which will be tough and c) filling in the middle after a & b have been bedded down.

 

Now turning to your observations specifically, priority sector lending (PSL) obligations apply to all the banks, not just IDFC and for universal banks are currently set at 40%. However, PSL does not necessarily have to be a drag on ROE. If you try and isolate the PSL issue specifically then I would argue that structurally disadvantaged NBFCs like Shriram Transport Finance, Chola and Sundaram, which focus on PSL sport ROE's in the mid to high teens and Bandhan Bank's ROE is pushing 30%! So PSL can be done well. For this to apply to IDFC Bank you need above average management and I doubt anyone that knows IDFC well will argue management is not above average. Rajiv Lall moved over from IDFC Ltd to spearhead IDFC Bank and he is fantastic. Vikram Lamaye, at Rajiv's side since 2005, is looking after IDFC Ltd.

Also within a PSL/non PSL entity, IDFC Bank's competition (Axis, Yes, etc) are proving that mid to high teen ROE's are possible whilst having to purchase your PSL portfolio.

Let's also not forget that IDFC's focus is on infrastructure lending and is specifically advantaged, because infrastructure loans are exempted from PSL (as well as CRR and SLR). So although I think your point is a fair one to raise in general, there are factors specific to IDFC that are missed by the market. 

 

also there is a mandate to open branches in rural areas by RBI which IDFC bank is pursuing aggressively. so between the priority sector lending, cost of startup and opening new branches, the ROE is likely to remain below 10% for 2-3 years.

 

Branches - I don't recall RBI dictating specifics around the rural branches. IDFC received a universal banking license because they see a HUGE opportunity in Bharat banking, exactly because it can now be a achieved by a) accessing a segment of the population that was hereto not accessible [

from about 40min mark] and b) because it can be done with a branch-lite model. IDFC is doing exactly the opposite of what you suggest and most people (including bank analysts) assume they are doing, which is to open standard bank branches aggressively. In fact Rajiv Lall makes it clear that he believes those that are following the traditional bank branch model (as most are still doing) will in effect be toast! [

19 min mark]. According to BCG footfall and associated revenues in India bank branches have fallen 7% in just 12 months!!

Everyone is going to be spending money to get this right and I will rather be with the bank building for this new reality than the ones that will have to shift into reverse gear.

 

However, I'm not disputing your general point that opening branches/technology investment and general costs of the "start up" will depress ROE, BUT do not lose sight of the fact that starting with a clean slate at exactly this point in the life cycle of banks in India, is a HUGE opportunity, because the disruption for the existing branch model is significant

and you need to remember that IDFC has a payment bank license too (with Telenor & Dilip Shanghvi)

 

The low ROE on the back of a depressed Infra cycle (already showing signs of correcting), extra ordinary provisioning when starting the bank (high probability of a write back) and investment in the startup presents an opportunity. To say it will stay depressed for the next 2-3 years is the same as calling the turn in the infrastructure cycle. At 60%-70% of book value I think one is well compensated for betting against that.

 

A 10% ROE in indian context is sub par and usually a bank having this level of profitability will not sell above book value (eg the PSU banks)

 

Most PSU banks average ROEs around the mid teens and average P/BV of well above 1x e.g. State Bank of India averaged 13.5% and 1.35x over the last decade. The reason they are selling below book today is because of the RBI's cleanup and nobody believes their book values anymore.

 

However to draw a line to connect IDFC and the PSUs is simply incorrect, which could very well be what the market is doing. Do I think IDFC Ltd will hit a 10%+ ROE in the current financial year? No, unless they write back some of the provisioning. Having said that, over the short term, once there are consistent signs that infrastructure spending has picked up you can kiss the P/BV of under 1x goodbye, which is possible in this financial year and over the long term I'm willing to bet on at least a mid teens ROE, which will again lead to a rational P/BV. 

 

 

 

[MrB]

Is this available to non-Indians and non-hedge funds?

Yes.

IDFC Ltd has reached its foreign ownership limit, so you have to buy F shares, which is a normal share, which gets tagged as an F share when owned by a foreigner. So you are buying shares already owned by a foreigner and there is a premium attached, which averages 4% from memory, but fluctuates between 1% and 8%.

 

IDFC Bank Ltd has not reached its foreign ownership limit.

 

However, if you're really asking whether there is an ADR then the answer is no.

[rohitc99]

Mr B

I am an indian and have lived/ invested in india  ;) so i understand your arguments and agree with most of them. The point i am making is that there more nuance to it.

We are saying roughly the same thing - IDFC is a decent bank (i differ from your assessment of management as i have been an investor of the erstwhile IDFC for 5 years and found the management ok, but nothing extraordinary. lets see how they manage the bank) with depressed ROE due to startup costs and low leverage (Capital adequacy is a term used in indian banking - a different way to showing levarage)

 

On the point of PSL - i think you are mixing a few things. PSL with Shriram transaport is different (i am also invested in shriram transport). Shriram transport is into used vehicle financing and has done well for a different set of reasons. Traditionally a lot of specalized NBFC have done well in niches in the area of PSL. I am not sure IDFc bank will do as well or even needs to.

 

On lowering the cost of funding - yes that will happen, and as you indicated it is happening partly through corporate borrowing and later through retail. IDFC bank cost of funding is around 8-8.5% and they are looking at any incremental options to lower this (current through Fixed deposits and later through savings/ current accounts in retail)

 

On comparing with PSU - I am comparing the ROE and how the market is valuing banks. Banks like SBI have been valued much higher in the past as they had a much higher ROE and also were hiding their losses. The same occured in late 90s and the current situation is just a repeat (happens every decade - call it crony capitalism)

 

On infrastructure lending - IDFC was lending to large corporates in the field of power, telecom and roads. Power continues to be a mess and incremental lending is still under stress to these sectors. I am personally not getting excited by most of the reports coming out as the ground level reality is changing much more slowly. IDFC bank has started lending to corporates through different products. I dont agree with your point of it having a franchise in infra lending. They barely earned 12-13% over the cycle after adjusting for the losses the company took on the books.

 

I am personally invested in IDFC bank so dont disagree with some of your analysis. the only difference (if i have not misunderstood you) is that the i expect the pace of improvement to be much slower.

 

[MrB]

Mr B

I am an indian and have lived/ invested in india  ;) so i understand your arguments and agree with most of them. The point i am making is that there more nuance to it.

We are saying roughly the same thing - IDFC is a decent bank (i differ from your assessment of management as i have been an investor of the erstwhile IDFC for 5 years and found the management ok, but nothing extraordinary. lets see how they manage the bank) with depressed ROE due to startup costs and low leverage (Capital adequacy is a term used in indian banking - a different way to showing levarage)

Why do you have a less than stellar view of management?

1997-2004 under Nasser Munjee was awful, with the company almost taken over by government and management staging a walk out. There was a clear difference after Rajiv Lall took over in 2005 and brought Vikram Limaye with him. IDFC compounded book value per share by more than 17% per annum over the following 10 years, which was significantly higher than the ROE as a result of 4 capital raises ranging from 1.3x to 3.7x BV. The timing of those raises also seem uncanny. Mid 2007 at 3.7x, 2011 at 3.7 times, etc. Seems pretty smart to me. ROE has been pretty mediocre over the last 5 years, but I'm laying that at the feet of poor infrastructure investment in India.

The way they have run the loan book over the last 10 years and especially the last 5 years also seems way above average. It was very smart to then, despite the decent loan book, go way above and beyond to provision for any eventuality before launching the bank into a general cleanup of the banking system in 2015. On the one hand it seemed ridiculous when with their gross NPLs of just over 3% and net restructured loans of almost 4% last year, which carried 60% provisioning to then go even further with more provisioning assuming 16% of stressed assets! On the other hand it makes perfect sense if you have management that says they want to take any discussion about their balance sheet off the table when they launch the bank and not have to deal with what just about everybody else is dealing with right now; questions about their balance sheets. I find it interesting that the RBI have not even visited these guys yet.

Lastly something else that impressed me is that they walked away on three occasions from buying a bank. I think once based on price and twice because of quality issues. Not many will do that.

I can imagine that someone that held IDFC for the last 5 years must feel pretty disappointed, but I'm thinking that is pretty much down to the industry, not management.

 

It is my understanding that the culture was shaped by Deepak Parekh and Vinod Rai; the former founding IDFC and Rai I can trace back as far as 2002/2003. Those two are arguably of the most ethical businessmen in India. Deepak's track record at HDFC speaks for itself and Vinod was an excellent CAG and he has just been tasked with heading up the Bank Board Bureau, which will apparently eventually become the holding company for all the state owned banks. Pretty impressive as far as I can tell. 

 

Having said all that, I'm genuinely interested in understanding your view about management, because I think they are top notch. It will be most helpful to understand management missteps over the years.

 

On the point of PSL - i think you are mixing a few things. PSL with Shriram transaport is different (i am also invested in shriram transport). Shriram transport is into used vehicle financing and has done well for a different set of reasons. Traditionally a lot of specalized NBFC have done well in niches in the area of PSL. I am not sure IDFc bank will do as well or even needs to.

 

No, what I said was that “PSL does not necessarily have to be a drag on ROE” in response to your observation “banks in india have to lend to priority sector (dont recall the exact %) like agriculture etc which has lower margins and returns”

Although I'm probably putting to fine a point on it. I think we might be saying the same thing, but just be looking at different time frames.

So let me try and frame it differently.Would you agree with the following? A) NBFCs are structurally disadvantaged, because they cannot take deposits. So if SHTF, Chola, Sundaram, etc were to be run out of an IDFC Bank structure it will sport a higher ROE than they currently do? Put another way, Bandhan will end up with a higher ROE in a few years, once it is past its investment phase, because it can now lower its cost of funding? Effectively what I am saying is that Bharat Banking at IDFC has the potential to eventually sport an ROE of over 15%. So not assuming it will be easy, just that structurally there is no reason it is not possible?

B) This is not to detract from the point I think you are making, which is over the next 2 to 3 years and maybe even longer, Bharat Banking/PSL will deliver sub 10% ROE and therefore be a drag on the overall ROE?

 

On lowering the cost of funding - yes that will happen, and as you indicated it is happening partly through corporate borrowing and later through retail. IDFC bank cost of funding is around 8-8.5% and they are looking at any incremental options to lower this (current through Fixed deposits and later through savings/ current accounts in retail)

Yes, but a) it is already pretty low and b) it is going to be tough. Although I think it is pretty impressive that they already have term deposits of 41Bn (almost 20% of net advances) after less than 6 months of launching. I don't know what the costs on that is, but looking at the rates on their website the average might not be much lower than 8% if at all. Anyway, it does tell you something about their ability to leverage their loan book into deposits, so let's give management that.

 

On comparing with PSU - I am comparing the ROE and how the market is valuing banks. Banks like SBI have been valued much higher in the past as they had a much higher ROE and also were hiding their losses. The same occured in late 90s and the current situation is just a repeat (happens every decade - call it crony capitalism)

It is a bit off topic, but I think the cleanup of the banks will give a massive boost to rooting out corruption. Go after the money! I think you very well know that statement might sound overly optimistic, but imagine the state level/crony capitalism discussions going on in Punjab now with the issue around the missing grain. It must be putting an end to a lot of the misdirection of resources in that state. Do you think I'm too optimistic on that one?

 

On infrastructure lending - IDFC was lending to large corporates in the field of power, telecom and roads. Power continues to be a mess and incremental lending is still under stress to these sectors. I am personally not getting excited by most of the reports coming out as the ground level reality is changing much more slowly. IDFC bank has started lending to corporates through different products. I dont agree with your point of it having a franchise in infra lending. They barely earned 12-13% over the cycle after adjusting for the losses the company took on the books.

Well I'm looking at it more in terms of the infra cycle. The first 5 years under Rajiv they averaged 16% ROE and the last 5 11%, which was a terrible time for infrastructure in India. The question of course is what does the next 5 years look like. It is interesting you mention power, because towards the end of last year Rajiv mentioned on a call that "80% of or potentially slightly higher than that relate to the coal and gas based assets that I talked about surrounding fuel issues or tariff issues". This week it was announced that India renegotiated its gas price down from $12 to $5. http://www.thehindubusinessline.com/economy/policy/india-open-to-longterm-gas-contracts-at-5mmbtu-goyal/article8509932.ece

 

My understanding is that the tipping point for coal/gas is $7 , so this new contract must give a massive boost to the efforts to get the stranded gas assets of 24,000 MW going and that will  again have a meaningful impact on IDFC's stressed loan assets.

 

I am personally invested in IDFC bank so dont disagree with some of your analysis. the only difference (if i have not misunderstood you) is that the i expect the pace of improvement to be much slower.

That might be true, but are you compensated well enough to take on that risk today? If Shriram management is saying they are clearly seeing infrastructure picking up and you have major developments that could kick start the gas assets and reports of record infrastructure output in March then the probability of infrastructure actually taking off in a meaningful way is clearly rising. Everyone is expecting a sub 10% ROE from IDFC this year, but I'm thinking you cannot shake your head in amazement if they actually end up surprising on the upside. There are clear signs pointing the other way. The ultimate head fake is going to be a really good monsoon, which will make infrastructure look left for dead and towards the tail end of the year investors are going to wake up to the reality that infrastructure is off to the races again and so will IDFC's price. Not the craziest idea.

 

Thanks for your comments rohitc99! Very much appreciated!!

P.S. Bankruptcy Code got passed in Lok Sabha today  ;D

[MrB]

Today's draft publication of RBI's on top licences would allow IDFC to collapse the holding company structure, which is cited by many as one reason for the IDFC Ltd discount. That probably explains why the stock is up 13% today.

 

 

RBI's draft norms for on-tap bank licences may upset big business houses

http://www.firstpost.com/business/rbis-draft-norms-for-on-tap-bank-licences-may-upset-big-business-houses-2767308.html

[rohitc99]

Mr B

thanks for the detailed response. you have definitely done a lot of homework  :)

 

On management quality : My initial impression was quite close to what you mentioned. since then i have spoken to a few ex employees which gave me a sense that the management is a bit promotional in nature (not necessarily negative). The risk management was reasonable considering the space they were in, but at the same time the performance they have delivered has been very much in line which what an average lender in this space could generate. So in a way, it was not inferior or superior.

 

In addition to this their accquisition of SSKI (brokerage) was done at a peak and since then the valuations have dropped. On the other hand their purchase of the standard chartered AMC has been good with the AUM up 4X. So the performance has been mixed in the past.

 

Due to the above factors, i am more in the 'show me' mode where i would like to see the management deliver

 

On infrastructure: The drop in gas pricing and clearance of some other issues is definitely a plus, but main problem in the power sector has been the state electricity boards, which have mind boggling levels of corruptions and power theft (in some states barely 30% of the users pay for the power). There is an uday scheme to fix this, but it is a political problem in the end and after 20 years of watching this, i am not holding my breath :)

 

Personally, i would bet that IDFC grows outside the infrastructure space (which they plan to) and lends in this space only if attractive opportunities come up. I am personally not basing my thesis on the revival of this space as there have been a lot of false starts and there are still quite a few structural problems in this space (land rights, bloated balance sheets in most of the infra companies etc).

 

On PSL lending: When i refer to PSL lending for banks, i refer to credit to the agri space. it ofcourse includes lending to MFI, SME and CV space too. However the reason that some of the companies you mention are doing well is because they operate in niches and have specialized biz models for them. On the other hand, the plan vanilla PSL lending does not have a high ROE and hence the mandate from RBI on it. This is also the reason by foriegn banks have refused to get into it and hence do not have the approval to expand their branch network.

 

Hence my concern that an expansion in the PSL book in the short term, will supress their ROE for sometime

 

I hope you are right :) i will benefit from this a lot, however maybe i have been close to this for too long to feel equally optimistic.

 

and yes, the bankruptcy code getting passed is a really important development which somehow the media has missed as it is not sensational in nature

[MrB]

Thanks for the extra colour, it is helpful.

I remember that brokerage acquisition; also thought it was pretty much up there.

 

Please don't confuse my statement about the possibility of Bharat banking doing well with the probability I'm willing to put on it succeeding. As a fellow Shriram investor and having spent quite a bit of time to understand that space, meeting with the rating agencies, credit teams, Murrugappa/Chola, Sundaram, etc, I would like to think I appreciate how difficult it is to carve out those niches. IF Bharat succeeds, which is a big IF then it will take them a long time.

However, we were just having a long chat internally about this again yesterday and the feeling is that the mojo will come from basically what you are mentioning; corporate non-infrastructure lending. If you compare IDFC today with where Axis, Yes, IndusInd, etc was when they had similar asset sizes then you can see a fairly well beaten path of reasonably quick growth. There are a few analyst reports (MOSL in particular) that make that point too. However, what gets me excited is that the huge difference between those guys and IDFC Bank is that they were all equity constrained. IDFC Bank is starting life with a hugely underleveraged balance sheet and as the last 3 months have shown they can raise deposits (term/corporate so higher cost) quickly; they just need to focus on lending. With the state banks having to delever this should be a walk in the park for them. The proof is in the pudding though.

 

I'm also hoping on a writeback of the original 2,500 Cr provisioning, but I notice it is being reclassified quickly; sitting in Sub-Standard now.

 

Anyway downside seems limited, so let's see how she goes.

 

Bankruptcy code is apparently, and I'm quoting some journalist, "going to sail through the Rajya Sabha". I wish he did not say that!! >:( :( :(

 

Thanks again!!

[MrB]

Today's draft publication of RBI's on top licences would allow IDFC to collapse the holding company structure, which is cited by many as one reason for the IDFC Ltd discount. That probably explains why the stock is up 13% today.

 

 

RBI's draft norms for on-tap bank licences may upset big business houses

http://www.firstpost.com/business/rbis-draft-norms-for-on-tap-bank-licences-may-upset-big-business-houses-2767308.html

 

Some more info on the options for IDFC as a result of the new guidelines

http://economictimes.indiatimes.com/markets/expert-view/it-could-be-time-for-reverse-merger-of-idfc-as-a-bank-sudip-bandyopadhyay-market-expert/articleshow/52160863.cms

 

http://www.business-standard.com/article/finance/idfc-bank-parent-merger-on-cards-116050700041_1.html

 

For reference

This ICICI report explains the pre and post the spinoff structure.

http://content.icicidirect.com/mailimages/IDirect_IDFC_Q2FY16.pdf

Also

http://www.business-standard.com/article/finance/idfc-charts-9-year-plan-for-banking-journey-114040401083_1.html

 

CURRENT STRUCTURE SIMPLE

http://bsmedia.business-standard.com/_media/bs/img/article/2014-04/05/full/1396636434-3717.jpg

 

CURRENT STRUCTURE DETAIL

http://www.idfc.com/images/simplified-corporate-structure.jpg

[MrB]

IDFC and Shriram entities merging - This is a big deal (no pun intended)

 

 

http://www.moneycontrol.com/news/business/companies/shriram-group-to-merge-with-idfc-group-to-create-financial-powerhouse-2321517.html

[MrB]

Merger with Shiram failed late last year. Now this one announced.

https://economictimes.indiatimes.com/industry/banking/finance/idfc-bank-capital-first-may-have-to-raise-rs-4000-crore-to-meet-norms/articleshow/62502682.cms

 

https://www.capitalfirst.com/pdfs/v-vaidyanathan-secret-diary-of-an-entrepreneur.pdf

 

"Deepak Parekh revealed that they had called him for a reference check and he had told them: “See what he has built at ICICI. If you want to back one person in the country, back him.”"

 

[sampr01]

IDFC LTD still best own than IDFC Bank?

Merger with Shiram failed late last year. Now this one announced.

https://economictimes.indiatimes.com/industry/banking/finance/idfc-bank-capital-first-may-have-to-raise-rs-4000-crore-to-meet-norms/articleshow/62502682.cms

 

https://www.capitalfirst.com/pdfs/v-vaidyanathan-secret-diary-of-an-entrepreneur.pdf

 

"Deepak Parekh revealed that they had called him for a reference check and he had told them: “See what he has built at ICICI. If you want to back one person in the country, back him.”"

[MrB]

IDFC LTD still best own than IDFC Bank?

Merger with Shiram failed late last year. Now this one announced.

https://economictimes.indiatimes.com/industry/banking/finance/idfc-bank-capital-first-may-have-to-raise-rs-4000-crore-to-meet-norms/articleshow/62502682.cms

 

https://www.capitalfirst.com/pdfs/v-vaidyanathan-secret-diary-of-an-entrepreneur.pdf

 

"Deepak Parekh revealed that they had called him for a reference check and he had told them: “See what he has built at ICICI. If you want to back one person in the country, back him.”"

 

Yes because the reasons for the holdco discount are being chipped away. Watch for the dividend pass through tax in the budget at the end of this month. Expecting it to be eliminated; tax is important reason for discount.

[indirect]

Does IDFC Ltd have NPA?

 

whereas IDFC bank is a new bank charter and does not have any previous baggage to drag down returns.

[MrB]

Does IDFC Ltd have NPA?

 

whereas IDFC bank is a new bank charter and does not have any previous baggage to drag down returns.

 

Not IDFC (hold co), however the bank does have NPAs. Holdover from infra days and around 3% gross (1% net). Significantly over reserved in my opinion, but do your own work.