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IDFC plans for the bank in earnest

image001IDFC, which just received an in-principle approval to start a bank, has put in place a nine-year plan for the proposed venture. IDFC’s executive chairman Rajiv Lall said it will be implemented in phases, the first phase with a three-year tenure focusing on the compliance and experimenting with the business model. “It will be a marathon than a mere sprint, Lall said, indicating IDFC will come out to be a formidable force in the Indian banking scenario. Lall said the first phase will include the 18-month period till end-September 2015 for pre-launch work and to meet regulatory norms. A majority of the loans which are, at present, on IDFC’s balance sheet, will move to the new bank’s books. The focus would not be on growing the present business and if it shrinks during this phase, he explained. He added that operations will begin in urban and rural India at the same time andl hinted at big action in financial inclusion, with the help of technology. “We believe some important changes have occurred in the last 10 years that make banking in rural India a more commercially interesting proposition than it was in the past,” he said. Building on its learning in the first three years, during the second phase (fourth to sixth year), the bank expects to consolidate activity and expand. Then, confident of taking on and giving competition, the bank would return to growth in the third phase (after the sixth year). Under the proposed structure, the parent, IDFC, will be at the top of the heap, with a non-operating financial holding company a step below. This NOHFC will hold four subsidiaries – for banking, investment banking, asset management and alternate assets class businesses. The proposed bank will also commence activity simultaneously on home loans through a separate subsidiary, which will at a later date be transferred to the bank. Lall also said existing IDFC shareholders would get shares of the bank on a proportionate basis. IDFC Bank will be listed right from the beginning. It will also be issuing shares in the parent company (IDFC) on a preferential basis to domestic investors, to bring down the stake of foreign institutional investors (FIIs) within the regulatory limit (49%). At end-December 2013, FIIs held a little over 51% in IDFC. The bank will be led by a person from within IDFC. Vikram Limaye will remain at IDFC and will not lead the bank, Lall said. IDFC had hired a handful of people at the senior level for the bank. Ajay Mahajan, former YES Bank hand, has joined as head of new initiatives. Avtar Monga will be chief operating officer. Prior to this, he worked with Bank of America as managing director, global delivery centre.

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