IDFC First Bank expresses concerns over its exposure to Vodafone Idea

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 Private lender IDFC First Bank in its annual report addressed the concerns that some of the investors would have about its exposure to the cash-strapped telecom service provider. Amid concerns over the bank’s asset quality that could be impacted the most from the troubles faced by Vodafone Idea (Vi),

In a note to its shareholders, IDFC First Bank Managing Director and CEO V Vaidyanathan said “I would now like to directly address the concerns that some of you would have about our exposure to Vodafone Idea. Let us hope the government supports the industry; out of the total dues of the company about 1.5 lakh crore are owed to the government itself and hence they will be keen to solve this issue. In any case, we have a lot of growth capital by our side.”

While other lenders also have high exposure to Vodafone in absolute amounts, Yes Bank and IDFC First are likely to be impacted the most as the top in terms of percentage of their loan books.  “We will peruse the matter through law of the land. With a strong liability base consisting of low-cost CASA of 50%+, we get good margins in our business. We can compound our advances continuously by about 25% for a long time, and we can build this book to any size of our desire in our lifetimes, it could be 2 lakh crore, 5 lakh crore, 10 lakh crore, or more,” Vaidyanathan added.

He added that the bank will ride it through without impacting its long-term future and build a great bank from here. “So we will keep our eyes riveted on the longer story. We have experienced such situations earlier and have always learned that if we have a strong and profitable model and go on for extended periods of time, then a one-off incident does not dent the long-term story.”

Vodafone Idea is in an urgent need to raise funds to deal with its liabilities and pay dues as its situation remains an overhang after the Supreme Court rejected its appeal to allow the payment of self-assessed adjusted gross revenue (AGR) dues and Kumar Mangalam Birla’s resignation as Chairman after his offer to hand over Aditya Birla group’s stake to the government.

IDFC First’s Head of Investors Relations said that the bank is doing well on all core building blocks. However, after Vodafone Idea Chairman’s letter to the government came to light in early August, its stock has continuously been under pressure and has come down sharply to the early 40s.

The bank believes that the government will solve the problem to keep this a competitive telecom market, however irrespective of the outcome, it is already prepared, and “the bank has strong capital buffers to deal with the situation.”
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