We will get to know on Jan 29th when the Q3 results are declared. If this news is true then it is definitely a backward step in terms of reducing the infrastructure loans. it is called evergreening and once they get into this habit they will continue with it
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Lets not jump the gun here. Vodafoneâs current exposure is Funded - 500 crore for which provisions already exist. Other Non-funded bank-guarantees - govt is returning them anyways.
Lending per se is not bad. As you can see, even SBI and HDFC Bank have given loans here. Also, we donât know the exact amount for IDFC-First. Also, the concern of VI being a going-concern is no longer valid, as Government is now a major promoter of the company, and so no short-term risk exists for these short-term loans
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Given that Vodafone raised no fresh equity in the last many years and with lower revenue every month, how were they supposed to pay off their existing debts without taking new ones.
I think we (IDFC bank investors) are in wishful thinking mode that Vodafone pays off our debts by taking new debt from other lender e.g. SBI. Why will one lender give a new debt to an entity only to pay off its debt to another lender?
Vodafone has a lot of liabilities such as Tax, Loan, Spectrum fee etc. Government is converting its tax & spectrum fee liabilities into equity. That will help Vodafone in paying off its liabilities towards banks. But given Vodafoneâs reducing market share, even that will take some time.
Overall, Government is trying to make sure that Financial institutes donât lose their money and if in the process, government gets some of its liabilities back, that will be a bonus.
From banksâ perspective, they should all get most of their money back but it may take a bit longer time. For IDFC bank, given governmentâs focus on banksâ liabilities, the Bank guarantees are out of risk already. Itâs the funded part where there is a small risk, they will get payment but over a longer time (by getting old ones back while issuing new ones of smaller amount/ on different terms).
Overall, with almost 500 crores of provision and Government as biggest Vodafone shareholder, Vodafone dues donât look like a very big risk for the bank.
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Now we have three know data points for the vodafone IDEA loan
- Vodafone Idea has paid back 1500 cr RS. bonds to IDFCFC
- Total infra loan book of IDFCFC de-grew to 6.6 % as against 10.5 % of total funded assets. (as per Q3 update)
- IDFCFC along with HDFC and SBI has given fresh loan to Vodafone Idea
If we connect the dots and try to draw some rough estimate, I thick fresh loan by IDFCFC will be small part as it is small bank compared to other big brothers (i.e. SBI and HDFC). As we assume loan is proportional to total loan book of each bank, IDFCFC share will be less than 250 Cr.
It is winning situation of IDFCFC.
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To add
- And these Rs5000 crore new short-term loans are for NCD payout, so IDFCFirst itself will get back its Rs 500 crore from this payoutâŚ
I am guessing that as there is already provision, IDFCFirst may have given max of the same 500 crore to VI. Anything less is even more better
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Now we are saying because HDFC and SBI are doing so IDFC first bank can also or should also do it. This is definitely use whatever supports the narrative. Though I am heavily invested in this I am always open to changing my stance based on what the bank is doing. Objectively speaking IDFC first if they are serious about reducing infra loans should just walk away from financing VI again in any form. Also giving new loan and taking it back as NCD payout etc is called ever greening. It doesnt fit the shrinking the infra loans to 0 narrative. Definitely I would wait for Jan29th to get clarity
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I feel they have an obligation from the ministry/govt. to help VI. They were also part of the consortium of banks that bought stake in yes bank when it needed capital.
Here the key monitorable is whether IDFCFB is part of the consortium of banks which is giving loans to VI (as instructed by ministry) or if they are evergreening the VI loan.
I hope the loan size is not more than 500cr from IDFCFB since it is the smaller bank in the consortium. Since they already got 1500 cr and are bound to get another 500cr later this month, this should not be a big worry.
We will get some clarity on Jan 29th. This VI loan issue will affect the PAT, provisions in a significant manner IMO.
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It is basically some type of loan restructuring as right now company can get loan at cheaper rate then in past.
I can understand sbi being there as goverment can force them indirectly but it hdfc is giving loans then we need to see what is the real exposure and at what rate is important.
Also it is also written every bank has there own tenure so as goverment has stepped in so atleast for few years loan problem might not be a concern and also to add the agr dues issues will also be solved.
Even if vi is clear that is very hard as mentioned many of the loans are very long term ones still there are many issues and also banks can very hard to predict as management can be good they can still give not so good results.
Just wanted to make sure that I am following the thread that Jan 29 will give clarity on either of the 2 things - âAs instructed by ministry or evergreening the VI loanâ
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Very incisive discussion. But in my opinion no bank (r) no bank, private or public will lend money to VI at this stage unless repayment is fully secured. The only asset VI can offer is the 5G spectrum after the auction in May -June 22. I feel that the loan of 5000 cr at 6.5% to 8.5% interest can only be a secured loan against a highly credible and liquid security. Let us marry that to todayâs headline where all Telcos have demanded a 95% reduction in base rate of 5G spectrum and the loan starts to make sense. Most probably the amount of 5000 Cr is for facilitating the 5G acquisition and not for evergreening. The demanded 90-95% reduction in spectrum base price is to bring it in line with the value, banks are assigning to it.
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I do not think any bank would have agreed to increase its exposure to VI. This will be a wish full thinking that term loan exposure of idfc first will be lesser than NCD.
Even if its evergreening - its better than writeoff
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Well then how would you have reacted when ncd payment wouldnt have gone thru and a hit of 2000cr on p&L of bank would have lead to another equity round to maintain teir 1.
Some times we have to chose between baddest and bad evil. My inference was not to do ever greening everywhere, what i meant was, its better situation than write off of 2000cr and raising another equity round at such low valuations.
Not everything should be seen with same lense.
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I guess we need to wait until the results for actual numbers to come out. All we are doing is speculating. We donât know how much would be lent if at all i.e. Also, would be nice to get some context around it from Vaidyanathan. Also, I think this forum is ready to move beyond the Vi issue now, I am sure there is more to idfc first that VI exposure.
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I totally agree with youâŚThis thread is becoming more of Vodafone than IDFCB. I donât know why investors too worried about this issue. VI never defaulted to any bank, They paid the dues with interest. IDFCB only made precautionary provision to this. Not sure why people are classified this as a NPA. Vodafone is not going anywhere , they will be here and they will do business ( may not be as a number one but as number three player) . Guys number three for 1.5 billion population ( not a joke). So sit tight and move beyond VI. I have mentioned this earlier, VI is not an issue for the bank. There are many things to look into. Bank has written of 2000 crore reliance capital two years back and it survived right. Now VI paid their NCDâs on time with interest. Why the community is worried I donât know. I urge people to move beyond VI. VI is not a threat to the bank, if at all it is an opportunity.
With this I will stop reacting on VI from today on this forum as my part.
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With due respect , VI was never a NPA. They repaid everything on time with interest, not only to IDFCF but to every financial institution they have taken. I am sure whatever you have read in the news about fresh loan to VI and we are discussing here is a pure speculation. we are reacting to imaginary stories. We will come to know only after this Q results and concall.
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Sorta agree with @Ajay_Kumar_Kommaraju . Loan to VI would be less than 0.5% (assuming 500crs) of the total book and even lower on a forward basis. I think we can rest the issue here.
Should focus on other operational issues such as branches getting opened during the quarter or credit card AUM or retail loan growth or home loan growth. These factors will be the re-rating triggers going forward.
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Dilution, too doesnât seem like an issue as of now. However, we need to monitor branch openings and cost to income ratio.
And NPA ofc.
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I dont think many here are talking about VI becoming an NPA. VI fresh funding in any form may not be inline with shrinking the infra loans to 0. That way there are other loans like the toll road project that was declared NPA last qtr and had to be provisioned for. All of us here would like to see the infra loans going to 0 at the earliest. And all those funds can go towards retail lending which is what VV has been saying.
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Not all Infra loans are bad⌠No bank can afford to shut off any sector for lending and say my Infra book will be zero⌠even so, if it is such a big sector with huge tailwinds for the next decade, like Infra⌠They may put more focus on good underwriting, ring-fencing the book with tangible securities, lending to ethical and well performing infra-players, and putting a limit to the infra-book (like 5% or 10% of the total book)
The stated goal of idfc first bank is to shrink infra loans to zero. I dont think we need to discuss if infra loans are good bad. I personally look at whether the bank is sticking to its stated objectives are not. If it is not I move on. But I would like you to give it a thought, how many financial institutions have consistently made profits giving loans to infra without building up huge NPAs. May be you can provide us an example of an institution that did it.
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