Good morning, and welcome to our call to discuss Fairfax's proposed IDBI Bank transaction. This call may include forward-looking statements. Actual results may differ, perhaps materially, from those contained in such forward-looking statements as a result of a variety of uncertainties and risk factors, the most foreseeable of which are set out under risk factors in our base shelf prospectus, which has been filed with Canadian securities regulators and is available on SEDAR+. Fairfax disclaims any intention or obligation to update or revise any forward-looking statements, except as required by applicable securities law. I'll now turn the call to our Chairman and CEO, Prem Watsa.
Thank you, Derek. Good morning, ladies and gentlemen. Welcome to our conference call on IDBI Bank. With me today is Peter Clarke, President of Fairfax Financial Holdings, Amy Sherk, Chief Financial Officer, and Sumit Maheshwari, who's the President of FairBridge Capital, our subsidiary in India. As we have said in our press release, we thank Prime Minister Narendra Modi and his team for undertaking a highly transparent and competitive process before selecting us as the buyer of approximately 61% of IDBI Bank. We believe, as I said in the press release, this is a once-in-a-lifetime opportunity to purchase a majority interest in a bank in one of the world's fastest-growing economies, and to combine it with a successful and growing insurance company and an established provider of investment banking and wealth management services.
We intend to support India's journey towards Viksit Bharat and a U.S. 30-plus trillion economy, and our ambition is to play a critical role in the Prime Minister's vision of India as a developed economy by 2047. We believe a successful IDBI Bank can transform the lives of average Indian citizens, and our vision is to help increase India's credit to GDP ratio. We have been working on this transaction for four years now, since October 2022, but we have been tracking the bank since 2019, allowing us to do some very detailed due diligence. IDBI is the sixth-largest private bank in India in terms of deposits and was founded in 1964, 62 years ago. It got into trouble in the 2016 to 2020 time period, with cumulative losses of approximately $6.4 billion.
Financed by LIC and the government of India, Rakesh Sharma joined the bank in 2018 and cleaned up the bank by taking losses of approximately 1.8 x the shareholders' equity in 2015. Since 2021, the bank has been profitable, and in the last 12 months, ended June 2026, earned approximately $1 billion. In rupees, INR 93.2 billion. Rakesh has done a superb job and will continue as CEO. We will add to the bank's board NS Kannan, who was the former Managing Director and CEO of ICICI Prudential Life and former Executive Director and CFO of ICICI Bank, as he will be Chairman of IDBI Bank, subject to RBI approval. Rajendran, who's the former CEO of CSB Bank, will also work with us closely as an advisor.
Also, we benefit greatly from having Deepak Parekh, former Chairman of HDFC Limited and the founder of HDFC, and Paresh Sukthankar, former Deputy Managing Director of HDFC Bank, as our advisors. The IDBI Bank is financially very strong, with capital adequacy of 27% and a net worth of $7.5 billion. We will always maintain a very strong financial position, as we have throughout our 40-year history. The bank also has a huge deposit franchise, with 43.6% in CASA deposits, and CASA deposits are low-cost deposits. Also, IDBI Bank has a net NPA, net non-performing assets ratio of only 0.2%, non-performing loan provisions of 99% of non-performing loans, loan-to-deposit ratio of 80%, and total assets to common equity of only 7x . All very good in an absolute way, and also compared to the private banks in India.
If you analyze Singapore's growth and ask yourself if you knew Lee Kuan Yew would become Prime Minister in 1965 and grow the economy like he did for the next three decades, what would have been the best investment? Of course, the best investment was real estate, but that is tough to buy for any institution. The next best investment was banking. The four largest banks in that country compounded at about 20% annually. When I was on the ICICI Bank board for eight years, the CEO at the time, Mr. K. V. Kamath, told us bank assets in India would grow annually at 2x and 2.5x the growth in nominal GDP in India, and that is exactly what happened. We see this as an opportunity for the next two decades at least.
Combining IDBI Bank, Go Digit, and IIFL Capital would create an entity that would transform the lives of average Indian citizens, provide a meaningful and significant benefit to Indian consumers and businesses, and will also benefit IDBI Bank, Go Digit, and IIFL Capital, and Fairfax for many decades to come. As you know, we always treat people using the golden rule: treat people like you want to be treated yourself. Fairfax expects the purchase price for the transaction, the purchase of approximately 61% of IDBI Bank, to be financed by cash on hand, dividends from our insurance companies, potential asset sales, including the previously announced sale of Eurolife company, and the contributions of Go Digit and IIFL Capital at their respective market prices. As we said in our press release, all the transactions will be subject to RBI approval, SEBI, and IRDAI, which we expect to get in time.
Thank you for joining us, and now we are ready to answer your questions. Fran, over to you.
Thank you so very much. Now, if you would like to ask a question, please press star one. Please take a moment to unmute your phone and record your name clearly when prompted. Your name is needed to introduce your question. Our first question today is from Stephen Boland with Raymond James. Your line is open.
Good morning. I am not sure what to take it. It is nice to hear your voice again, Prem.
Hey, good morning.
I guess the question just goes on maybe to one of the last statements you said, and apologize, this is one question, but your debt- to- capital at the end of Q2 was 27%. Between Boots and IDBI, it is almost an $8 billion outlay. You mentioned cash on hand, that is about $2.3 billion at the end of Q2. You have a couple billion of credit facility. I guess, what is your maximum debt- to- capital goal at the end of this outlay? Because then we can back into a certain amount of assets.
Very good question. That's a really good question, and I'll pass it on to Peter. How do we finance this? That's a great question, and you can imagine we've thought about this for at least four years. Peter, over to you.
Thanks, Prem. We expect the funding of the acquisition is $5.6 billion, as Prem had mentioned, and the expectation is we're going to do it through a combination of our holding company cash, dividends from our subsidiaries, asset sales, and the contribution of Digit Insurance, including the life operations and IIFL Capital. For those three companies, that's approximately $3 billion on its own. I should just point out, at June 30th, Fairfax held at the holding company cash and marketable securities of $2.3 billion, plus on top of that, an additional $2.3 billion of investments in associates and consolidated non-insurance companies. So almost $4.6 billion of cash and securities at the holding company.
Also, just to reinforce that in the first half of the year, we sold 1/2 of our position in Poseidon for approximately $1.9 billion, and the sale of Eurolife that was announced last year, we expect to close in the second half of 2026 for approximately $900 million. One other point is, at June 30th, the market value of our associates and non-insurance consolidated investments was in excess of their carrying value of $4.4 billion. So that $4.4 billion is not carried on our balance sheet today. Lastly, Fairfax, we've averaged $4.3 billion of earnings over the last three years. With strong earnings and premium levels moderating for our insurance operations, we are generating a lot of excess capital, and that can support further dividends from them.
When you go through all those points, you can see that we have a great amount of flexibility for financing this acquisition and the other transactions that you mentioned. Just to point out on our financial leverage, none of this financing includes any long-term debt issuance, so our leverage ratios will not be affected significantly from this.
Terrific, Peter. Thank you very much. Thank you for your question. Can we go on to the next one, Fran?
Jaeme Gloyn with National Bank Capital Markets, your line is open.
Thank you.
Yeah, thanks.
Good morning, Jaeme.
Good morning, and congrats on what seemingly to get this over the line. I guess one follow-up on the funding. Is the plan to use any of the insurance company float as part of that funding structure? A quick answer there. Secondly, just in terms of the strategic benefits that will flow through from this deal. I guess, what are some of the first steps that you expect to achieve, to implement, and how can we assess this deal over the near term, given that it's a multi-decade investment thesis?
Yeah. So the strategic benefits from IDBI Bank, it's an investment from our standpoint. We've invested in India for 30 years plus. We've done extremely well, as you know, there. This country is perhaps the best country to invest. What people forget is India, by the end of this year, and Piyush Goyal, the Commerce Minister, mentioned this in Toronto, there's going to be 60 - 70 free- trade agreements. Free- trade agreements with Europe, with U.K., with Japan, and on and on. Canada is almost done also. So what does that mean? That means you can manufacture in India at a very low cost and sell it all over the world. They're talking free trade into Brazil, they're talking free trade into Australia, New Zealand, all of those countries. On the other hand, companies can also sell into India.
Our thinking is that in the next 10 years, India is going to have unbelievable growth because of that opening up the economy. On top of that, the Prime Minister said that this is a classic here. We are buying one of the. This is, I think, perhaps the biggest financial transaction in India, and perhaps not the last one. India is in a tremendous growth opportunity. I have used this before, but just think of it is a very simple example. It is actually, my son, Ben, has used it many times. Maharashtra is one of the big states in India. 130 million people. Norway has 6 million people. 6 million people, 130 million people. Same GDP, gross domestic product. That just shows you the potential in Maharashtra.
By the way, if you go to Bombay recently, and I was there for about 10 days, it is an unbelievable change that has taken place in the last couple of years. The opportunity in India for economic growth, there is IPOs every day, and IIFL Capital benefits from that. But in terms of funding in the insurance company, Peter, why don't you tackle that one?
Yeah, and specifically, Jaeme, just on your question on how much will be in the insurance company's portfolios. Still early days, but we expect that to be minimal. A lot of this will be funded at the holding company level. Prem? Next question, please.
Thank you for that question. Fran, can we go on to the next one?
Tom MacKinnon with BMO Capital, your line is now open.
Yeah, thanks very much.
Hey, good morning, Tom.
Yeah, morning. If we look at your AGM, you have this operating income outlook, $5 billion. And just $1 billion of that $5 billion was from share of profit and associates in consolidated non-insurance income.
Yeah.
Now, with Boots and IDBI, how are you looking at this operating income outlook now?
Yeah. I know that. Tom, I just told you that last 12 months, IDBI Bank made $1 billion. We own 61%. The math is pretty simple. This is after-tax net income. I am sure over time they will increase the dividend. They are very well capitalized, and so that flows to us. But the big opportunity, Tom, is the growth in an emerging market. When an emerging market goes from $3 trillion to $4 trillion GDP to $31 trillion in 20 years, you just think of what happens if the middle class, which is however you define it, 250 million, 300 million. 300 million, that is like the United States population, and it doubles in 10 years. Imagine the bank accounts, the insurance that is needed, the housing that is needed. It is just unbelievable. Every product that you can think of.
By the way, China went through that in the 2000 to 2010 time period when they were growing at more than 10% real economic growth. We sort of see that happening in India right now and diffusing because of all the roads that are being built, like it was built in the 1950s in the United States, diffusing into the rural areas. So there is a massive opportunity. Of course, with Galen Weston and Wittington and Boots, we see that they have a tremendous expertise in that area. We will write a little about that in the annual report. But as you said, the operating income for us from these significant investments is going to be very meaningful for Fairfax shareholders. Peter, you want to just say about how this is accounted for in terms of being an associate, IDBI Bank.
Sure. Yeah. Like Prem said, we expect that we will be accounted for on an equity accounted basis again. Just under the Banking Regulation Act in India, one shareholder can only have voting rights that are capped at 26%. So this fact and a few others, we think that puts this investment in the equity accounting bucket.
And I guess the Boots would be in a similar position.
It would be a similar position.
Right.
And you might remember, we did sell half our position in Poseidon in the first half of the year, and that was also in this same equity accounting bucket.
Thank you, Tom. Any follow-up, Tom?
Yeah. How do you feel about the shift in your earnings mix now away from insurance, like underwriting profit, interest and dividend income, and more into earnings from associates, if you will?
Yeah.
That's a big transition for Fairfax over time.
Always. Yeah, sorry. I was just going to say, I think you said, is there a shift in earnings mix from, say, insurance to-
How do you feel about that? It's traditionally not what Fairfax was about. It was an insurance company investing the float. Now it's-
Yeah.
-it's an investment in associates company.
The insurance business, Tom, is our basic bread and butter. That's where we make a good return. We've got underwriting profit, which we told you in the operating income. I think we said operating income of $5 billion and after taxes and all about $150 per share and $4.3 billion, as Peter was saying in the past. But that operating income, there's two components for it. There's about $2.5 billion of interest in dividend income, mainly from government bonds, pretty significantly government bonds. We don't have any private credit. Unfortunately, we don't have any high tech. We don't have anything with PEs to speak of. So it's very conservative, recognizing that the markets are high. But having found something like this, we react. But our investment portfolios are very conservative. And it's not long term, three or four-year term for our bond portfolio.
Interest rates have gone up, and then they've come down in the last few days. But it doesn't affect our bond portfolio too much, and it's all unrealized fluctuation. But our bread and butter is underwriting profit and investments. The insurance business has interest in dividend income. Insurance business has developed a $75 billion U.S. investment portfolio. There's no business like the insurance business if you can manage it properly. That's allowed us to compound close to 20% over 40 years. Yeah, Peter, you want to add to that?
Just one thing, Tom, I'll add is you'll remember though, our insurance business, we've doubled our premium since 2019. We went from about $16 billion to over $33 billion today. So I don't think there's any less focus on the insurance business, but our portfolio doubled, our premium doubled, and we invest where we think there's the best opportunities.
Our insurance business is very disciplined, Tom, as you know, very underwriting-focused, very conscious of reserving. It's all extremely well reserved. The market is coming down right now. Meaning the insurance market's coming down. As Peter Clarke said, we don't think our insurance businesses need any money. We are very excited about our insurance business. We're one of the top 15 companies in the world, Tom, all over the world. If you had told me 40 years ago when we started with $10 million that this would happen, we would never believe it. We went through the ups and downs, but we've got a very strong insurance business, as good as any in the world. Next question please, Fran.
Thank you. Bart Dziarski with RBC Capital Markets, your line is now open.
Great. Thanks for taking the question. Good morning. I wanted to ask around sort of the expected returns on this acquisition in the sense that you have a successful track record with bank deals, notably Eurobank, but it was different where you purchased Eurobank during a period of distress, and you got a really attractive valuation. Here, you're paying a premium to book, and Prem Watsa, you mentioned the bank is on solid footing. Should we expect that 15% return you've generated on other bank investments? If so, what are the sort of drivers of that return? Thanks.
Thank you for that question, Bart. I'll just give you a sense for what we did with CSB Bank, which we bought in 2018. The book value has grown since that time to now, about 24% a year. Net advances loans have grown by 20% a year, and the deposits have grown by approximately 15%. It's profitable, it's done extremely well. Bank investments right from ICICI Bank many years ago to Bank of Ireland and CIB Bank in Egypt. It's one of the best banks in the world. It happens to be in Egypt. Eurobank. Eurobank has, I think we said in the annual report, pays a dividend, and then the dividend and the buyback accounts for 1/2 the earnings, and we own 1/3 of it. Every time they buy back, we have to sell. We're forced to sell.
We can't have more than a third, otherwise, we've got to make an offer to all shareholders. The net effect of that on a cost basis, this is not accounting, but on a cost basis, our investment is getting to be zero. Meaning very soon, we would have no cost in it because we've got the shares that were bought, we had to sell, and the dividend that was paid. It's a phenomenal investment for us. It continues to do very well. Greece continues to do very well. As you said, they were depressed in the past, and we got 15% on it. This one, the big thing I'm trying to mention to you so that you, and you can see, is the growth possibility. Nothing is guaranteed in life, but the growth possibility in India, we think could shock everybody.
Remember, this bank used to be a government bank. It's become a private bank now, but it's really very recently. We can attract, and we have attracted, you just have to see what we did with the Bangalore International Airport. We can attract the best people in India to join us. A high level of integrity, run the bank, focused on customers, doing well for the customers, focus on providing great service for the customers, focus on the employees who provide the service. Make a return. You have to be profitable. The bank has said in their investor presentation they want to make 15% and have done that recently. Then look after, we of course invest in the community. Fairfax, the whole company was worth $10 million [in 1986]. Last year, we paid $90 million U.S. all over the world in our charitable 2% of pre-tax profit.
We're going to use that same model, and it's decentralized, run by Rakesh Sharma. He's done a fantastic job. Going to get some help from Rajendran and Kannan. In a bank, it's credit, credit. You have to be careful about credit. Who you're lending it to. They got into trouble in the past because they lent 70% to commercial accounts. Today, it's 30% commercial accounts, meaning businesses, 70% retail, and out of that 70% retail, 70% mortgages. So it's a very, very strong company right now. As I told you, assets to equity 7x . In 2008, when we had all the problems in North America, the assets to equity were through 20 x, 25 x. They're very lightly levered, and we'll always maintain a very strong financial position. We're not going to expand at the expense of the financial position. Bart, thank you for that question.
We go on to the next one.
Jeff Fenwick with ATB Cormark. Your line is open.
Good morning, everyone.
Hey, good morning, Jeff.
Prem, I wanted to ask about the ownership percentage here on the deal and in the context of the regulatory limits within India. It sounds like Go Digit and IIFL will be vended in. You will take cash maybe out of the surplus capital, so you will be at 61%. I think the limit today is 74% under the regs, but then I recall there is typically some requirement to sell down to a certain level over a period of time. Perhaps you could just remind us of what-
Yeah.
-that structure is?
Yeah, that is true, Jeff. As Peter said, it is 26%, right? So they have given us 15 years. In 10 years, we have to go from 60% to 40%, and in the last five years, out of that 15-year time period, we go down to 26%. That is what the rules are today. Of course, we will follow the rules. But I remind you that when we began in the insurance business, you were limited to 26%. Property casualty insurance, foreign company was limited to 26%. Then it went to 49%. Then it went to 74%. Today, Jeff, it is 100%. You can own 100% of a property casualty company. So these rules may change. We do not know. But if the rules remain the same, we will have to go down to 40% at the end of 10 years and 26% at the end of the 15 years.
Thank you. That is helpful.
Thank you, Jeff. Let us go on to the next question.
Our next question from Stephen Boland with Raymond James. Your line is open.
Thanks. I'm just following up on Jeff's question. Just on how you're moving Go Digit over under IDBI. Is that through excess cash at IDBI buying the shares of Go Digit at market, and moving it under that subsidiary? Or is there another mechanism that's being used?
Yes. The way it works is there's excess capital at IDBI Bank, and so they'll just pay cash. They are all public companies, I guess, should share, but we don't see them. We see them paying cash at the time of the deal at market prices. Remember, Kamesh is the guy who began Go Digit about seven, eight years ago. One person started this company. Now he's got more than 2,500, I think the last count was 2,500, maybe even more. He's gone through $1 billion, closer to $1.5 billion maybe, and it's profitable. It's a phenomenal track record. Now he'll have the ability to provide the insurance, property, casualty, life, to the customers of the bank and provide them directly to the customers. He already does that for other banks. He's going to do that for IDBI Bank. It's very attractive.
Go Digit Insurance is totally digital. There's no paper. Everything is digital.
Okay.
At the same time, when you look at IIFL Capital, it is phenomenal. We have been in it for 15 years. We have known Nirmal, we have known Venkat, the founders, and now there is a guy called Vasu who runs it with Nemkumar. All excellent people. We have known them for a long time. So it is not like we are doing this not knowing the people that we are getting involved with. These are high-grade people. That is why we are so excited. Thank you.
Thank you. Many of the portfolios in Prem-
Even we go on to the next question.
Saloni Shukla with The Economic Times, your line is open. Please check your mute button. Your line is open.
Hello, sir. Good morning.
Yes, waiting for you.
Yes. Yes, sir. Thank you. Sir, just wanted to understand that you have outlined the whole India plan, and many congratulations for the deal. I just wanted to understand on CSB Bank, that is somehow not part of the disclosures that you have made. So if you could give us some understanding, because as of now, Reserve Bank of India does not allow ownership of two bank licenses. So is there an undertaking, any understanding that you could share with us?
No, thank you for that question, Saloni. That's a good question. We have two licenses, and the RBI has given us two years to make a decision as to what we do. So we're going to look at all of that. There's lots of time for it, and we'll make a decision at the time, and we'll let you know when we make the decision. But thank you for your question, Saloni.
Okay. Thank you, sir.
Next question, Fran.
Thank you. Our next is from Jaeme Gloyn with National Bank Capital Markets. Your line is open again.
Hi, Jaeme.
Thanks. Yeah, thanks. Just wanted to follow up on timing of the transactions and the bend-ins. Obviously, it can take a little bit. Do you have any sort of sense, I guess, will everything should be done within that two-year period to decide on CSB Bank, but do you have any more visibility on the components of the transaction?
Jaeme, that's a very good question. We don't really know. We didn't know when this would come out too, and it came out, as you know, yesterday, and we prepared a press release. We knew it would come sometime, any day. Now it has RBI approval. IRDAI means the insurance company regulatory body. SEBI is the SEC of India. You get all of these approvals. The two companies are public, right? Go Digit is public, and IIFL Capital is public. These approvals, we can't forecast. We're expecting that it might be the first quarter in 2027, next year. But it could happen sooner too, but we're just waiting for all of that. We're working through the regulatory bodies. We've talked to them already, and so we expected the process to go as quickly as it can. Next question, Fran, if you don't mind.
Certainly. Bart Dziarski with RBC Capital Markets, your line is open.
Great. Thanks for taking the follow-up.
Hi, Bart.
Hi, Prem. Pro forma, the Go Digit and IIFL contributions, you have an entity that spans sort of all of financial services, if you will. You have banking, P&C, life insurance, capital markets. Just curious, why is that the right model to go with, and are you planning on rebranding Go Digit and IIFL as part of this pro forma? Thanks.
Yeah. No, thank you. We have no change in the structure. We said in our press release. Go Digit is Digit. Go Digit is run by Kamesh and his team. They have a terrific record, and of course, they'll continue to run it, and pretty well independently. IIFL Capital has got a 20, 25-year track record. It's a very good company, really good people. So no change in that operation too. We have never believed in synergies and all of that. We have a big insurance company, as you know, Allied in New York, New Jersey, and we've got Odyssey there too. When we bought it in 2017, everyone thought we'd put it together. They had $3 billion each in premium. Today, it's almost $8 billion in Allied, $7.5 billion, and that's close to $7 billion in Odyssey.
They've done extremely well, and we never know synergies. We never mentioned anything about synergies. We kept it separate. So we believe in decentralized operations. That's one of the reasons for our success, and we continue to believe in that. Next question, Fran.
Gopika with Reuters, your line is now open.
Thank you for giving me this opportunity.
Hi, Gopika.
Just a clarification on CSB. Would you prefer to sell your stake in the bank or merge it with IDBI? I have another question after this.
Go right ahead, Gopika.
Sorry, can you hear me? Hello?
Yeah.
Hello?
Oh, yeah. Sorry. On CSB Bank, you are saying, I thought I answered that, but CSB merge or sell? Those are the two options we have, merge or sell. We got two years to make the decision, Gopika, so we will think through all of that very carefully.
Would you have any preference?
Thank you very much for your question. Thank you.
I have another question.
Fran, next question, please.
I have another question.
Divyesh Trivedi with Times Now, your line is now open. Divyesh, please check your mute button.
Who's that, Fran?
Divyesh Trivedi with Times Now.
Hello, am I audible?
Yes, we hear you.
Yes, this is Piyush Shukla from ET Now. I want to understand, sir, you are saying that you will either merge or sell within two years, you will take time for CSB. You briefly mentioned how well the bank has done since you took over in terms of book value and growth in both advances liabilities. As of now, where do you tilt more? That is one. Second is, you have around 13% stake in IIFL Finance currently. Indian regulations disallow same lender to have two different entities in the same business in the forms of business regulations. Would you look to exit your stake fully in IIFL Finance is something that we need clarity on? Thank you.
Divyesh, thank you for the question. We have talked about CSB Bank, there is nothing more to add. On IIFL Finance and IIFL Capital, of course, we are not going to talk about that here. Any decision we make will be communicated at the right time. At this time, we are saying that IIFL Capital is going to be the one that we will have, I think, 51% of it, and it is well on the process of getting it approved. Thank you very much for your question. Fran, next question.
Kama Jen with [Bandhan] Bank, your line is now open. Oh, that line disconnected.
Is there no more questions, Fran?
Yes. That disconnected, so we have no further questions at this time.
Fran, we thank you very much for hosting this call, and thank you very much all of you on the call for attending this IDBI call, and we look forward to the next one where Peter Clarke will host it. Thanks again. Thank you.
Again, thank you everyone for your participation in today's conference call. You may please disconnect at this time.