@shka you have asked a very good question. I will share my thoughts on the same.
What exactly is Vaidya trying to do on the long term. He is trying to build a bank with the liability side of HDFC Bank, the asset side of Bajaj finance, and the operating efficiency of a Fintech.
How successful is IDFC in the journey towards that goal?
Liability side of HDFC bank - There is quite some success in this dimension. A highly granular liability deposit franchise has been built up with 80% retail deposits. The cost of funds of IDFC used to be 220 bps higher than average of scheduled banks. Now that gap has narrowed to only 60 bps, and is expected to continue narrowing in the coming years.
Asset side of Bajaj finance - I would say that there is good progress on this dimension too. 80% of loan book is retail, with a focus on high yielding unorganised segment, consumer finance, etc. There were two credit mishaps in IDFC bank - legacy infra loan book, and the microfinance book. It must be noted that both the infra loan book and microfinance book were inherited by Vaidya from the erstwhile IDFC Bank - and both these books are now run down and contained. As regards the rest of the loan book - the lending record of Vaidya from Capital First days is quite stellar, with not a single credit mishap in the 15 to 16 years since Vaidya took control of Capital First.
Operational efficiency of a Fintech - I would argue that IDFC has managed to build a class leading digital stack and class leading digital experience among all major banks. However this is yet to reflect in low operating costs. In fact operating costs are at elevated levels, mostly due to the upfront investments required to build the bank.
If IDFC indeed manages to become the bank with the liability side of HDFC, the asset side of Bajaj Finance and the operational efficiency of a Fintech - then I would say that the sky is the limit - it will be a bank generating 25% ROE. If anyone can do it - then it would be Vaidya. I don’t see anyone else who comes even remotely close. But it’s going to be a long journey, but a fun journey too.
The wild mix of excitement and disappointment around this bank is because it’s doing so many things incredibly well, but still none of it has yet translated into significant profitability. But then, that’s exactly what should be expected from Vaidya, because he is playing the long game.