IDFC plans to launch its banking operations from October 2015, with about 15 branches in Madhya Pradesh (spread over three districts Hoshangabad, Khandwa and Harda) and 5-10 branches in Delhi and Mumbai.
The bank plans to focus on corporate and rural banking in the initial phase of its operations and will gradually work towards building up its retail portfolio, which will be the most challenging piece to execute as the company transforms into a full scale bank.
The bank will be starting operations with a networth of Rs.13,500 crore (after making incremental provisions of Rs.2,500 crore) and a total share capital of about Rs.3,400 crore, which implies a book value of about Rs.40 for IDFC Bank and Tier 1 of about 16 per cent.
Going ahead, we expect credit cost to remain much lower at about 0.6 per cent as IDFC cautiously grows its loan book.
We believe that the imminent listing of the bank enabling investors i) to directly invest in the bank; and, ii) opening up of large FII headroom will act as near-term catalysts for stock performance, while improvement in earnings stability and return ratios will help re-rate the stock over the longer term.
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