STOCK MARKET--What is your take on the IDFC First Bank share, is it a good buy for long term (5 years +)?

IDFC First Bank was formed by the merger of Capital First and IDFC Bank in December 2018. It is going to declare its maiden results on 10th of May 2019. There are enough reasons to believe they would continue to grow exponentially in years to come.

Firstly, retail banks are safer bets compared to their corporate cousins. Retail bank loan portfolio is much more diversified and loan defaults are very low. IDFC got the banking license from RBI in 2015 and it tried to start retail business but due to its corporate background it was unable to focus on its retail business.

The merger of IDFC with the Capital First is a very big positive. Capital First is known for its phenomenal performance. The company had grown at a pace of 30–40 % CAGR (Compound Annual Growth Rate) before its merger with the IDFC. Capital First was dealing in retail business and this is why IDFC opted to merge with this company.

The growth story of Capital First was achieved with the help from its Founder and Chairman Mr. V. Vaidyanathan. He is the current CEO and Managing Director of newly formed IDFC First Bank. He is the person who had transformed Capital First into a large retail financial institution with operations in 222 locations across India within six years. Between March 2010 to December 2018, he had grown the retail loan book from Rs. 94 Crores to Rs. 29,624 Crores, grew the equity capital from Rs. 690 Crores ($ 118 mn) to Rs. 3993 crores ($ 600m), reduced Gross NPA from 5.28% to 1.94%, got the long-term credit rating upgraded from A+ to AAA. The Market Cap of the company has increased from Rs. 7.90 billion ($ 122m) to Rs. 7628 Crores ($ 1.17b). Mr. vaidyanathan has the experience of building retail business of ICICI bank from its inception to a large business of over USD 35 billion and 1400 branches across mortgages, auto loans, commercial vehicles, credit cards, among others.

Targets of IDFC First:

·         It is focusing on doubling the retail loan business from current 34.5 % to 70% in coming 5–6 years.It will become an another HDFC Bank in future.

·         Increasing the CASA ratio from currently 10 % to 40% in coming 3–4 years.

·         Increasing the branches from 200 to 600–700.

This is very much achievable provided Mr. Vaidyanathan is at the helm. Many institutional investors are positive on IDFC First Bank due to our consumption driven economy which is helpful for banks dealing in retail businesses.