As per the rules set by the RBI, IDFC will have to go through at least two stages of restructuring before it can open the doors of its first bank branch.
After bagging the banking licence , the management of the infrastructure lending firm are optimistic and justifiably excited about the road ahead. Meanwhile, CNBC-TV18's Ekta Batra and Davina Munro report that IDFC will have to go through a detailed restructuring before it can throw open the doors of it's first bank branch.
'We already have 21% tier-I capital and since we will be executing a transition from NBFC to a bank, we will be the best capitalised start up bank in India", says Rajiv Lall, Executive Chairman, IDFC.
Also read: Here's why RBI is banking on Bandhan
But it maybe easier said than done. As per the rules set by the RBI, IDFC will have to go through at least two stages of restructuring before it can open the doors of its first bank branch.
In the first stage, IDFC is expected to first establish an NBFC or a non operating financial holding company. Wholly owned by the promoter, this NBFC will in turn hold stake in the bank. Hence, we can expect IDFC to undergo a demerger process over the next 8-10 months where in a bank will be established and the existing lending business will be transferred to the bank.
Shareholders will continue holding their existing stake in IDFC while the NBFC will hold only 50% stake in the bank implying that the shareholder indirectly holds 50% stake in the bank.
The second leg of restructuring involves listing the new bank within 3 years of starting operations.
And the NBFC 's stake should fall to 40% after the third year. But that's on the holding structure. What about the operations as a bank itself?
One of the biggest fears for analysts is the return ratios dipping due to transition pain with IDFC having to adhere to set CRR, SLR and PSL requirements. But then again, the return on equity is expected to come back to 11-14% by FY20-21, after dipping to single digits in the first 3-4 years of starting operations as a bank.
In fact, most of the analyst have concerns such as asset quality risks and IDFC's limited experience in running any retail franchise that are mostly for the medium term; the consensus is that a banking licence is very much a long term positive for IDFC.
IDFC stock price
On April 03, 2014, IDFC closed at Rs 124.95, down Rs 3.05, or 2.38 percent. The 52-week high of the share was Rs 165.45 and the 52-week low was Rs 76.25.
The company's trailing 12-month (TTM) EPS was at Rs 12.79 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 9.77. The latest book value of the company is Rs 88.76 per share. At current value, the price-to-book value of the company is 1.41.
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