How is IDFC First Bank for Long term investment?!?

Here is the 1 Min Version of the Article to Save your time.

IDFC first bank is a relatively new bank and came into existence when IDFC bank and Capital first NBFC came together for a merger in December 2018.

So the focus of this answer will be more on its Top Management and we’ll try to understand its business model.

Management

• V Vaidyanathan is the managing director and CEO of IDFC first bank.

• Mr Vaidyanathan started his carrier in Citibank group with retail sector which will become his USP later.

• Later he Joined ICICI Bank which was a Domestic financial institution then and was known for financing corporates and other projects.

• And when ICICI bank was formed the retail sector was handled by Mr Vaidyanathan and he grew the retail banking segment of ICICI bank that we know today.

• He grew the retail business to 1400 branches and gained 25 million customers for ICICI bank that they have today.

Why is all this important to know?

• Earlier IDFC bank before merger were into wholesale business i.e. giving loans to companies and they were especially into infrastructure related companies.

• After the merger Mr Vaidyanathan Shifted the whole business focus to retail Segment and that’s shows high probability of this bank to be successful in the near future.

The accounts turn non-performing assets (NPAs) after 90 days of overdue in making payments. The accounts are classified as a standard before the 90-day period.

• Most of the branches of IDFC first bank is in urban environment where they were trying to attract more customers by their giving 6–7% on savings account to build their customer base.

• In last years investors meet they had the future plans to convert their retail business income to 70% in the coming 4–5 years and they are getting close and close each quarter.

• The above image tells how growth of the bank is in recent quarters regarding loans and other assets.

• There were also plans on reducing infrastructure debts as they are prone to defaults as we have seen with IL&FS.

• Also Provisioning for such bad loans has been already done that has affected profits of the bank too.

• They are targeting customers in rural areas which are neglected by big banks by giving them unsecured loans on very high interest rates with proper Provisioning.

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Provisions have also been increasing from past two quarters which shows they are in control and ready if loans turn into bad debts.

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• Npa’s are getting lower and lower from quarters to quarters except the previous pandemic quarters which shows the quality of a profile check a bank is doing before giving a loan to someone.
• Npa’s are even low in comparison to some of the well established banks even after providing unsecured loans.

• Net Interest Margin is margin that a bank gets while arbitraging.
• To put in simple words. for E.g.: The bank is giving 6–7% Interest rate to its account holders for Fixed Deposits and Giving loans out to customers at 11–12% so the difference of 5–6% is the bank’s net interest margin.
• Net interest margin has also been on arise from the past quarters which is a very good sign.

At what Levels should we Buy?

• Best Buy would be near 40-45 levels.

• Stock is currently on Support levels.

• So if you can stay invested for 5–7 years, this stock will give very good returns.

This is for Educational Purposes only. Please consult your financial advisor before investing.