BT500: 'Tragic to see rural India is most under-financed,' says IDFC First Bank MD & CEO V Vaidyanathan

IDFC First Bank's MD & CEO V Vaidyanathan on Wednesday said it was tragic to see that agriculture was still the most under-financed sector even after 75 years of Independence. "Agri is phenomenal. I find it rather tragic to see that when we go to rural market these days...and it has been 75 years of India's independence, even now we find, it is completely unfunded," Vaidyanathan said while speaking to Business Today Editor Sourav Majumdar at the BT500 Wealth Creators Summit.

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During the discussion on 'Financial Roadmap To $5 Trillion Economy', Vaidyanathan talked about changes in infrastructure financing, digital infrastructure, cyber risk, and the arrival of more NBFCs (Non-Banking Financial Companies). He felt that there was a need for lenders to do more in financing rural India.

The banker said that villagers were taking loans from his bank to buy buffalo and cows. "The other day I went to a village. We met about 70 villagers. Most of them are taking money from us for buying a buffalo, or buying a goat, or buying a cow. Then we went to another village, where we are financing another category of products specific to that village," he said.

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Agri is one of the three areas where IDFC First Bank concentrates as a lender. The banker said that the typical ticket size of these rural loans is Rs 2-3 lakh. He said the economics of cow and buffalo typically comes back in about 8-9 months. "They get the full money back (in 8-9 months) and after that whatever cow produces is free. Our collection percentage is 99.7 per cent in that portfolio. Gross NPA is 1.2 per cent and net NPA is 0.3 per cent," Vaidyanathan said.

The banker said that the borrowers in rural areas are sensitive and that delinquency is very low. "For them, getting formal credit from our bank is so much better than taking informal credit from somewhere else from whatever percentage."

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Vaidyanathan said that rural financing by his bank is changing lives. He said his bank is financing water and toilets, and they have recorded "fantastic re-payments". "We financed 3,28,000 toilets. We financed hand pumps. We financed the pipe that takes water to septic tanks. We financed septic tanks. We financed water purifiers. And then we financed the toilets - the whole kit costs Rs 40,000...we have given 30 million such loans in all segments," he said.

The banker, who is credited with having changed India's NBFC space, welcomed the new players like Poonawala Fincorp, Godrej Capital, and Piramal Enterprises Ltd that have come up in the lending business.

Asked about the competitive environment due to these new NBFCs, Vaidyanathan said currently the demand was more than what banks could supply. "For example, in our bank, we want to grow not more than 24-25 per cent. But the demand is coming like 35-40 per cent. We have to say - 'no' to, unfortunately, even good business. We have to stay within the radar of what is acceptable credit growth."

The IDFC First Bank CEO said that demand is so much that it is good that more players come in. "The same 20 banks can not make India a 10 trillion dollar economy. India needs more banks, more NBFCs, and more foreign capital. We should not forget that our per capita income is very low. By 2030, we will be a 7 trillion dollar economy - so who will finance that? The current model is good but more is better."