"The successful conversion from an infrastructure non- banking finance company into a commercial bank with a strong retail deposit franchise and a diversified loan book will be a major challenge for IDFC," the rating agency said in a note.
IDFC's return on assets and return on equity (RoE) are likely to "drop sharply" due to requirements to maintain the statutory liquidity ratio at 23 percent, cash reserve ratio at 4 percent and 40 percent priority sector lending, it said.
The city-based firm has RoE of 14.2 percent and RoC employed at 11.4 percent and a core capital of 22.1 percent.
RBI has given three options to NBFC to carry out banking operation. One of the options is to convert NBFC into a bank. IDFC, which is among the biggest infra financiers, on Thursday bagged the coveted banking licence along with micro lender Bandhan, beating corporate biggies like Aditya Birla Group and Anil Dhirubhai Ambani Group.
India Ratings said the operational costs for IDFC will increase significantly as it invests in the branch network and employees. Also, maintaining credit costs at low levels will be important as it starts lending to non-infra sectors.
IDFC will also be tested on the risk management front as the loan book becomes more diverse, and is expected to maintain a robust capital buffer, it said.
The other key challenge for the lender will be building a retail deposit franchise, it said and maintained that competitive market and a mandatory requirement to have branches in non-urban areas will be a drag on this front.
On IDFC's rating, it said the banking licence will be helpful to the credit profile in the long term "provided the transition is managed appropriately."
The company scrip dropped 2.38 percent to Rs 124.95 a piece on the BSE on Friday after rallying nearly 13 percent intra-day.


Latest News  from Business News Desk