On 15 September, the Indian government gave beleaguered telco Vi (formerly Vodafone Idea) something the company hadn’t had for a long time—hope. This came in the form of a relief package for the telecom sector, one which offered telcos a moratorium of up to four years on dues owed to the government.
While these measures are a reprieve for all India’s telecom operators, Vi stood to gain the most. The company owes ~Rs 1,68,190 crore ($22.6 billion) to the Indian government, according to the company’s results for the quarter ended June 2021. Prior to the government’s relief measures, there was significant doubt as to whether Vi would remain a going concern much longer.
It wasn’t just Vi that breathed a sigh of relief. The company owes Rs 23,400 crore ($3.1 billion) to a number of Indian banks, all of which would take a significant hit if Vi downed shutters. The bulk of this debt—~Rs 11,000 crore ($1.4 billion)—is owed to State Bank of India, the country’s largest public sector bank. However, the biggest hit would have been felt by IDFC First. The Rs 3,244 crore ($437 million) exposure—Rs 2,000 crore ($270 millon) of which is funded and Rs 1,244 crore ($167 million) of which is non-funded exposure non-funded exposure Non-funded exposure Non-Funded exposure is the commitment given by the lenders on behalf of its customers. In a non-funded facility bank don't provide real cash, rather providing commitment to the third party stating that if the customers fails to discharge the obligations, bank will do the same. —the bank has to Vi amounts to 2.9% of its loan book 2.9% of its loan book Economic Times A collapse of Voda Idea will hurt IDFC First Bank, YES Bank most Read more —the highest among all of Vi’s lenders.
Vi’s stay of execution allows IDFC First breathing room to script a turnaround, something it has been working on since its formation in 2018. The bank was born of a merger between IDFC Bank and Mumbai-based non-banking financial company (NBFC) Capital First. Today, IDFC First services around 9.8 million customers through its 601 branches, 565 ATMs, and over 20,000 employees across India.
At the time of the merger, IDFC Bank was saddled with bad loans. In addition to its exposure to Vi, IDFC First Bank acknowledged an exposure of Rs 1,784 crore ($240 million) to housing finance firm DHFL and financial services holding company Reliance Capital in the quarter ended March 2019—the first full quarter following the merger. DHFL and Reliance Capital have since gone on to default on loans amounting to Rs 90,000 crore ($12.1 billion) and Rs 20,380 crore ($2.7 billion), respectively.
Bank on it
IDFC First’s retail lending road to redemption
When IDFC First was born out of the merger of IDFC Bank and an NBFC, it inherited the former’s problems—including bad loans to the likes of DHFL, Vi, and Reliance Capital. As it seeks to build an identity of its own, it must first reckon with these legacy issues
The govt's recent relief package for the telecom sector didn't just bring joy to Vi, but also to the banks it owed like IDFC First
Formed by the merger of IDFC Bank and Capital First, IDFC First inherited loans from the bank which left it exposed to the likes of Reliance Capital, DHFL, and Vi
While IDFC First is still dealing with these legacy issues, it is moving more towards retail lending under the watchful eye of MD and CEO V Vaidyanathan
Vaidyanathan has already pulled off a successful retail lending play when he helmed Capital First. Now he's trying to script an encore with IDFC First