IDFC First Bank Limited

system · January 9, 2021, 1:05pm

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system · January 9, 2021, 9:05pm

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Rushil · January 15, 2021, 3:34am

Makes me a bit nervous that they are planning to offer lower interest rates to higher risk borrowers (customers of idfc first would on aggregate to more risky than those of HDFC,ICICI).
Hoping that is more for promotion than a real tactic.
Is my thinking correct here or they might target sub segments in their customer base.

AJ41 · January 15, 2021, 3:49am

Welcome move. If properly implemented, this would lead to moderate migration of customers from larger banks. Additionally, while cash withdrawal is mentioned as interest free - a one time fee of Rs. 250 charged as processing fee. Rs. 250 is a cool 20% return on a withdrawal of Rs. 10,000 for 48 days. This will help customers with urgent need of cash with a hassle free low cost credit and help bank grow its credit book at relatively low cost and investment(no paperwork and field employees). Lets see how the larger banks react to this.

AJ
Disclosure: Invested.

Akhilesh_Halageri · January 15, 2021, 7:43am

November update on debit and credit cards, compared with October:

Debit: 2578383 (+75540)
Credit: 41936 (+21878)

Assuming the same trend holds true for December, the bank will have issued ~750000 debit cards this year (proxy for savings accounts). Last year this number was ~530000.

naga_praveen · January 15, 2021, 8:53am

This may not be the correct way to look at it. The interest rate range is from 9-36% with good credit score customers getting it at low interest rate. This flexible interest rates was not there before I believe for credit card product (correct me if I am wrong)

Other way to look at it credit worthy customers defaulting on payments is less probable thus interest rate charged is not the main factor for the bank, but rather incentivising them to transact more. This is a good thing in a way.

Another thing is multiple credit cards. Thus even if a customer has credit card with hdfc etc can still prefer to have idfc card. So risky customers is not an issue as I don’t expect them to issue to such customers(sub prime if you may say).

Total number of outstanding credit cards in November was close to 6 crores and in my opinion multiple cards being held by every credit card customer. Thus very underpenetrated even among salaried class(in other words comparatively less risky customer). Thus they need not compromise any standards and still make good money on rhis product.

The product traction will be good.

sahil_vi · January 15, 2021, 9:01am

I would post my detailed thoughts later on, but does anyone understand the differences in the reward point structure for each of the 4 cards? They seem to have same reward structure from the website.

Also, they have not talked about a eligibility criteria. Assuming that the wealth card is the best in terms of rewards, wouldn’t everyone apply only for the wealth card (generally banks have a eligibility criteria. eg: HDFC Infinia is only available to people earning 3-4 lakh net salary per month).

Akhilesh_Halageri · January 15, 2021, 9:57am

The reward structure is probably a mistake, this isn’t an actual launch. Still in early stages where the bank is reaching out to eligible customers based on internal data so eligibility criteria also might not have been finalized. The join wait list form does not differentiate between card types. I got this message:

Thank you for expressing your interest in IDFC FIRST Bank Credit Cards.
We have enrolled you in our pre-launch waitlist. We will connect with you in the last week of Feb 2021.

Krishna1 · January 15, 2021, 10:03am

Aim is to get good quality customers not to under cut competition.
Credit Card market offers large opportunity for expansion.
Initial Customer Selection will be via invitation only.
Confident of maintaining credit quality.
By March will be close to 200,000 Cards.

sahil_vi · January 15, 2021, 10:49am

Wanted to share my summary of the credit card business updates shared by the bank. Sources are whatever has been posted above (print news, tv news, idfc first website, idfc first information brochure pdfs[1,2,3,4,5])

Facts

Bank is launching 4 credit card types. The reward structure in all available document seems to be same across all cards (0.75% on offline spends, 1.5% on online spends, 2.5% for all spends > Rs 20,000 in a month). This could very well be an unintentional mistake (I hope so) but given the amount of material which claims the same thing, I also doubt this is the case.
The key differentiating factor for the 4 cards seems to be the fringe benefits such as golf access which the ‘wealth’ card gets. As referenced in point 1, there could be differences in reward structure which will emerge eventually.
Right now (until march 2021), credit card will only be available to IDFC First bank customers (liability or asset side customers). While customers can express interest for the credit card, credit card initiation can only be done by bank. They want to expand the credit card book conservatively. Want to maintain good credit quality.
No interest on cash withdrawal by credit card holders. In some sense, this is akin to having a 0% interest (for up to 48 days) credit line available to customers.
No fees for joining, or in subsequent years, ever. Credit card is life time free (to own) for the credit card holders. No minimum spending limits have been disclosed yet but I anticipate there to be some minimum spending limits at least for some of the higher end cards.
Any transaction above 3k can be converted to EMI. On EMI and late payments, interest charged would depend on credit score of the customer (9%-36% range for interest charged for late payments).

My Opinion

If I had to summarize the bank’s approach to the credit card business in 1 word, it would be thoughtful. Instead of launching a me-too product offered by all the banks, IDFCF has gone ahead and created a thoughtful product which would reward the credit worthy (one can even withdraw cash up to credit limit for the period of payment cycle). By limiting the launch to the bank customers, bank has done a remarkable thing. They know that my saving account and FD and RD has XX lakh rupees. That itself makes me a low risk customer since they know that I would not be willing to default on the credit card payments with savings/FD/RD assets sitting in bank account. This enables them to provide me credit at 9%. This bucket of customers who are provided credit at 9% would most likely not be at a high risk default and i would be surprised if total credit costs even cross 0.5% for this bucket. This kind of a credit score based credit card fee pricing demonstrates a technological edge that the bank has created and wants to now deploy in the credit card business. Customers who have a more uncertain cash flow subsidise the credit cards for customers with a better credit profile. I have applied for a credit card myself and would continue to watch this space closely. I do hope they can provide more clarity on the differentiated reward structure and minimum spending requirements for various cards so that it becomes easy to benchmark/compare their cards against the incumbent.

Disc: Invested. This is not a buy or sell recommendation. Please do your own due diligence before investing.

Akhilesh_Halageri · January 15, 2021, 2:26pm

Please check the older posts, this has been discussed numerous times already. Source of the data is RBI.

Mukund_Bubna · January 15, 2021, 3:36pm

It would be very interesting to check the credit limit that they assign to the customers. This will help us understand how aggressive or conservative they are when it comes to credit card business.

For ex: I possess credit cards of almost all banks and Kotak has given me the lowest credit limit and Yes Bank the highest. This speaks a lot about the management.

Also Note: I possess OneCard too. This is a fintech that gives out credit cards and this is backed by IDFC First Bank. There is not much difference between the Yes bank credit limit and OneCard credit limit. But i am not sure how much of a say does IDFCF Bank have here - it might be that this is checked and granted completely by the OneCard team and their system

manikya_saiteja_gund · January 15, 2021, 3:56pm

Thanks for this @sahil_vi

My opinion:

From a customer standpoint, very unique positioning definately one of top 5 rewards card in the market. A winner no doubts, applied for one.

From investor view,

They are passing on the entire MDR revenue without retaining any in the form of rewards benefits- this usually forms 50% of the business revenue.
Customer grading and differential interest rates will compel many pure transactors (i.e people who pay on time and take rewards- potential 30% of card loan book) , Small business owners, HNIs to become revolvers(i.e people who carry forward by paying interest) if their credit card rate is close or below their other borrowing limits. - this means bigger yielding book.
Credit card business is inherently a 4-5% credit cost business model, differential pricing risk and high reward rate coupled with 0 annual maintenance charges leaves the bank with very less cushion during down cycle.
Was factoring in 4-5% ROA before this, seems like they will end up at far far lower ROA… Maybe some 2-3%
Seems like management is seeing this business too in the same 7% cost of funds and 14% yield narrative.

Akhilesh_Halageri · January 16, 2021, 6:50am

The reward structure in all available document seems to be same across all cards (0.75% on offline spends, 1.5% on online spends, 2.5% for all spends > Rs 20,000 in a month). This could very well be an unintentional mistake (I hope so) but given the amount of material which claims the same thing, I also doubt this is the case.

Your hunch maybe right that it is not a mistake. Just like all the articles and pdfs, I just noticed the back side images of all cards have the same information - “Upto 10x super reward program, super saver interest rates, privileges…”. But the rewards structure is something that can be dynamically adjusted so not a big concern right now, better to wait before analyzing further, until they make a full release for anyone to apply for a specific card directly.

biju_v_v · January 17, 2021, 9:30am

Rajive · January 17, 2021, 8:59pm

Hello Everyone ! I am new here and do see extremely good content , dialogue and heathy debate amongst boarders . I have one question - what are boarders views on high Equity base ? Won’t it be EPS dilutive and hence always acting as a drag on share price movement . Any perspective will really help . Thank you

prashant_patil1 · January 18, 2021, 11:23am

Please find Excel sheet for number of branches till 18Jan2021 as per RBI website. It is showing total number of branches as 719. IDFC First Bank branches and offices.xlsx (112.1 KB)

sahil_vi · January 18, 2021, 12:40pm

Thanks for uploading the sheet. A few interesting things:

There are now 724 branches and 38 offices.
A whopping 62 branches were opened in in Q3FY21 and 7 in Q4FY21.
Branch type is divided into 4 types: Metropolitan, Urban, Semi-Urban, Rural.
Since 1/oct/2020, 35% of the branches added were in Urban, 39% in Semi Urban, 6% in Rural and 26% in Metropolitan area.
Of the total branches: 28% are Urban, 21% are in Semi Urban, 6% are in rural and 44% in metropolitan area.
This clearly shows a shifting focus towards the tier 2 and tier 3 towns/cities.

Also uploaded this to google sheets so that anyone can access easily:

Disc: Invested, this is not a buy or sell recommendation. Full PF here.

deevee · January 18, 2021, 12:52pm

Hi

Just for background RBI mandates certain proportion of new branches opened by a bank in rural areas. In my experience private banks don’t prefer opening branches in such areas. For instance to classify as semi urban they will open a branch just on the fringe of a city getting a legal classification.

I do not recall but every bank has to open around 1/4th of new branches in lowest tier classification population wise all of which come under rural category.

This regulation is called something on the lines of rationalization of branches. Somebody can check the master circular.

Sorry my banking days are long over so I just remember the gist of this thing.

Aside

I personally would not weigh down much on number of branches open. Every branch has its own PnL and for most to turn green it takes a long time and mostly is a drag usually. Many never turn green. We will not have visibility into this aspect.

But I see some good hiring on CASA side done by the bank. See many of my old colleagues jumping ship and being part of IDFC FB. Sure the pay might be atleast better and the work too

Rgds
Deepak

Disc: Invested at lower levels

naga_praveen · January 18, 2021, 2:51pm

The branches also have kind of different designs. The below image is one example, the branch is located bang in middle of an area of small shops (found on twitter).

The growth of branches is very high in a short period of time even if we take 2 years as timeline, but this probably should not be seen in a traditional way of branch expansion.

Just based on branches that I’ve seen in the city i currently live, the per branch cost appears lesser (because of smaller size than a traditional bank branch). Does anybody have a different view???