The benefit of low cost of funds for banks is overrated. CASA deposits may be low cost, but generating them requires heavy investments in retail branch network, technology, staff costs etc. Banks also suffer from CRR / SLR restrictions and in general, a lack of operational flexibility and heavier compliance burden compared to NBFCs. IMHO, NBFC (borrow wholesale, lend retail) is a better business model than banks in today’s environment.
“In the long run, if ever there is a black swan event, you do need a fall back and that’s where a bank will help”, Ajay Piramal said in the ET interview. What Black Swan is he referring to? Does he fear a mass default at Shriram Group’s retail assets (for whatever reason) – which can be bailed out by regulators if the assets are on a bank balance sheet rather than an NBFC? Someone help me on this.
Terms such as IDFC getting “access to Shriram’s retail asset base” or customer network etc. are vague. They will not necessarily translate into more business for IDFC Bank. Why should borrowers of Shriram Group’s consumer loans (or truckers!) open CASA accounts with IDFC Bank when their salary comes into some other bank? CASA accounts are day to day operational accounts, and customer’s choice here is driven by very different considerations than whatever brought them to Shriram for loans.
Banking requires a very different mindset – banking is transaction oriented, action oriented. Banking requires a personal touch. NBFC and Infra financing are very different, you cannot change the way you work overnight. Even culturally I suspect IDFC to be very different from the Shriram Group – a merger is not just an arithmetical addition of two Balance Sheets.
I tend to agree with Anil Singhvi on this - IDFC shouldn’t have become a bank in the first place. And now, this doesn’t look very convincing either.
Disclosure: No exposure to any of the companies mentioned - IDFC, Shriram or Piramal Ent.