Capital First was founded by Mr Vaidyanathan, a veteran banker and entrepreneur, in 2012, by concluding India’s largest Management Buyout of a listed loss-making NBFC and infusing fresh equity into it with the stated intent of converting it to a commercial bank that would finance small businesses.
Mr V. Vaidyanathan built ICICI Bank’s Retail Banking business from 2000 to 2009 and was also the MD & CEO of ICICI Prudential Life Insurance Company in 2009-10.
Capital First grew to be a strong retail franchise in consumer financing, using new-age technology. It grew at 29% per annum with a 5-year profit CAGR of 55% and pristine asset quality. Between March 31, 2010, to March 31, 2018, its Retail Assets under Management increased from ₹94 crore ($14m) to
₹29,625 crore ($4 b, Sep 2018). In just 7 years, the company had financed 7 million customers, and increased market cap 10X.
As part of its stated strategy, Capital First was on the lookout for a commercial banking license in order to access retail deposits.
IDFC Bank was created by the demerger of the infrastructure lending business of IDFC Ltd., a leading infrastructure financing company primarily on project finance and mobilisation of capital for private sector infrastructure development.
IDFC Ltd. was granted an in-principle approval by the Reserve Bank of India (RBI) to set up a new bank in 2014.
IDFC Bank thus started operations in October 2015, and started building its corporate banking while also launching retail for assets and liability products. Over the next three years, it built strong IT capabilities and designed an efficient treasury management system. Recognizing the emerging risk in infrastructure financing, IDFC Bank put together a strategy to retailise its loan book so as to diversify and increase margins.
As part of its strategy to diversify its loan book away from infrastructure, the Bank was looking for a merger with a retail finance institution with adequate scale, profitability and specialised skills.
In January 2018, erstwhile IDFC Bank and erstwhile Capital First announced a merger. Shareholders of erstwhile Capital First were issued 13.9 shares of the merged entity for every 1 share of erstwhile Capital First.
IDFC FIRST Bank was founded as a new entity by the merger of the two institutions on December 18, 2018. In January 2019, the combined entity listed its new shares on the NSE and BSE (IDFCFIRSTB: NSE, 539437: BSE). IDFC FIRST Bank made a new beginning with a new Board of Directors, new management, a renewed focus and drive, a new brand logo and positioning.
The Bank’s strategy is to implant the erstwhile Capital First’s tried and tested model of financing small entrepreneurs and consumers on a bank platform and build on IDFC Bank’s network, excellent technology stack, quality digital banking and strong rural presence. It also used cutting-edge solutions to meet the needs of larger entrepreneurs and corporates.
The Bank is committed to building a customer-first culture, which guides its product and service design, and responsiveness to customer needs.
We want to create the world’s best bank, right here in India, for aspiring Consumers and Entrepreneurs.
We want to touch the lives of millions of Indians in a positive way by providing high-quality banking products and services to them, with particular focus on aspiring consumers and entrepreneurs of our new India, using contemporary technologies.
Our founding theme is ‘Always you first’ where ‘You’ refers to our customer. This theme binds the entire organisation, keeping it customer-centric at all times.
The founding years, which are the next five years, are particularly important, as the DNA we establish now will be hard to correct later.
We will make every effort to sell the right products to customers, avoid mis-selling, avoid selling such third-party products that make wonderful fees for us but at the cost of expensive products for the customer. If we make a mistake, we will apologise and correct it. After all, we do not want to take this Bank to great heights in profits and profitability while having earned any penny that truly does not belong to us.
We will always be straightforward and truthful with our investors and all stakeholders. Our stakeholders can always be rest assured that everything that will be represented by our Bank will be truthful and accurate.
We are confident of not only participating in the growth of Indian GDP, but also contributing to the growth of our beloved nation and her people. We aspire to create millions of employment opportunities, and finance the growth of business and consumption. This will lead to greater domestic production, greater consumption, and we want to contribute in further fueling the virtuous cycle of growth for our great nation.
Growth, you will agree, is not an issue in India. Mid-teens ROE can be built for sure, most good banks have achieved it. Our incremental margins are strong. Our business is highly scalable. We have a very high level of corporate governance. We focus on the customer. I believe it is inevitable that value will be created in this approach.
Excerpts from MD & CEO, Mr V. Vaidyanathan's letters to shareholders in Annual Reports 2018-19 & 2019-20
