As Rajiv Lall exits IDFC First Bank, challenges for leadership remain

During his three-decade-long career in India and abroad, Rajiv Lall wore many hats — that of an economist and policy expert, an infrastructure financing specialist, and later, that of a commercial banker. After five years IDFC First Bank got banking licence, Lall has decided to quit, citing personal reasons and assuring that the bank has a succession plan in place.

But, the former founder managing director and chief executive officer (CEO) of the bank is quitting at a time when the banking sector is going through a crisis. IDFC First, like other banks in the industry, has its share of challenges due to the onset of COVID-19 pandemic and a subsequent steep slowdown in the economy. The bank has a sizeable chunk of corporate loan book under moratorium, the fate of which is not yet certain.

To be precise, IDFC First has about one-third of its loan book under moratorium. Out of this, in retail financing segment, including rural portfolio, 23 per cent loans are under moratorium. In the wholesale financing portfolio, loans under moratorium account for 35 per cent.

A high portion of corporate loans being under moratorium could backfire if the economic revival takes too long.

In the FY20 annual report of the bank, Lall said the bank has started FY21 with a position of strength.

“In the year gone by, FY20, the bank weathered several challenges, some quite unprecedented. Despite this, its performance has been extraordinary,” Lall said, adding, “we are building a bank that we expect will stand the test of time. I am confident the bank’s inherent strengths and principles will enable us to endure and thrive.”

However, one needs to wait and watch if Lall’s optimism comes true for the bank. The key challenge will be the performance of the loan portfolio under moratorium. It is a difficult estimate to make.

"So far around 35 per cent of our loan book has opted for the moratorium. We expect that number to go up with the extension as more customers are likely to come and ask for a moratorium," the bank’s CEO V Vaidyanathan said in May, 2020.

Analysts have a consensus that industry may see about 5-6 per cent of loans going under restructuring which will subsequently increase the provisioning burden on banks. A bank has to set aside at least 10 per cent on the restructured loans. Provisions impact the profitability of banks.

“The last five years of IDFC First Bank were challenging. It is yet to make the complete transition unlike Bandhan Bank, which has continued with its core focus,” said a senior banker who wished not to be named.

Prior to joining IDFC First, Lall served as a partner with Warburg Pincus in New York, head of Asian Economic Research with Morgan Stanley in Hong Kong, a senior staff member of the World Bank in Washington, and that of the Asian Development Bank in Manila.

Lall served on numerous committees of the Indian government and the Reserve Bank of India, including the Raghuram Rajan Committee on Financial Sector Reforms, the High-Powered Expert Committee for Urban Infrastructure, the High-Level Committee on Financing Infrastructure and the Expert Committee on Modernisation of Indian Railways.

IDFC First bank, under the leadership of former ICICI Bank executive Vaidynathan, has a relatively young leadership. Lall, in his parting letter to the bank, said the bank has a well thought out succession plan post his exit. The details of this are not known yet.