IDFC First Bank Limited

Hi. Have recently exited IDFC First Bank due to below reasons. Would like to inform the VP forum:

1. Increase in NPS provisioning results into risk that Bank will keep on provisioning high on unsecured loans and high risky loans as compared to large banks. This quarter most of the banks had reduced provisioning but was not the same for IDFC.

2. High C/I ratio will take few years to come down due to high touch business model of the bank and investment in tech.

3. ROE is significantly lower as compared to other large banks. Will keep on raising capital whereas large banks don’t need capital to grow. It would be tough to generate strong alpha from here for few years till ROE & C/I doesnt improve.

4. Journey from here on will not be easy growing at 25% CAGR. Deposit war is very tight and bank has to keep on investing in branches to grow.

5. With recent increase in risk weight on unsecured loans, PL and other USL COF and risk weight shall go up and bank will have to focus more on secured lending which will result in NIM pressure.

Reduced financial sector allocation significantly since there are much distinct opportunities in Manufacturing, engineering, pipes, railway beneficiaries, water and many fast growing sectors in small and micro cap space which can lead to much higher alpha as compared to large banks in medium term.

P.S: Continue to hold Equitas since they are into distinct and less competitive sector within banking + Secured lending. Views are personal.