How Warburg doubled down on Vaidyanathan’s vision for IDFC First Bank

In private equity, repeat bets on the same founder are rare. Rarer still is when the first bet was made before the model was proven—and the second, after it scaled.

That’s what makes the Warburg Pincus–V Vaidyanathan relationship exceptional. Nearly 13 years after first backing his retail lending vision, Warburg has returned with a renewed conviction: this time, with a ₹7,500 crore infusion into IDFC First Bank , alongside ADIA Private Equity.

A rare encore.

Chapter One: Betting on Belief

The story begins in 2010, when Vaidyanathan acquired a stake in Future Capital Holdings by leveraging his home, claiming he will be fetching external backing and convert to a bank. It was then a complex NBFC burdened by joint ventures, an unscalable structure, and market scepticism. Raising capital in that climate was brutally hard. “After a brief GDP lift in 2010, growth started falling sharply between 2010 and 2013,” he recalled to this writer back in 2016. “It was the worst time to approach the market.”

A ₹300 crore equity placement flopped. Lenders wouldn’t lend. A foreign bank pulled out of a ₹300 crore loan after speculative reports. “Even getting meetings with known bank chairmen became tough. We were a small NBFC and speculation wasn’t helping,” Vaidyanathan had said then.

Despite the media noise and capital drought, Vaidyanathan quietly built a new model. He hired on weekends at the Four Seasons, focussed on micro-entrepreneur lending, and began originating and securitising loans using algorithmic scorecards. “We weren’t waiting for money to build. We were building, so that money could follow,” he said then.

Still, investor conversations often felt performative. “We strutted our strategy to fund after fund. There was never a hard ‘no’, but no ‘yes’ either. Others said, ‘Come down and meet our global head when he visits in a few months.’ A calm ‘couple of months’ for them felt like a tense ‘couple of years’ to me,” Vaidyanathan had said then.

Then, in March 2012, a moment of serendipity. On a return flight from one of his frustrating visits to Delhi, Vaidyanathan was seated next to Narendra Ostawal, a then-rising star at Warburg Pincus, who had been with the firm since 2007 and today leads its India investment advisory business. He jumped on the opportunity and did a two-hour business deep dive.

Soon after, Ostawal and Warburg India co-head Vishal Mahadevia flew to Mumbai for a closer look. Vaidyanathan was candid. He disclosed real estate bad loans, acknowledged ongoing losses in some verticals, but laid out a compelling vision—of a differentiated, retail-led lending engine, built on tech, risk intelligence, and governance.

Before writing the cheque, they reached out to HDFC’s Deepak Parekh for a reference. Parekh’s words were telling: “See what he’s built at ICICI. If you want to back one person in this country, back him.” ICICI’s K. V. Kamath and Kalpana Morparia had similar things to say.

It wasn’t just Warburg who got that mid-air napkin pitch. Around the same time, Vaidyanathan had a similar flight “napkin pitch” with Aditya Joshi, then at Apax Partners Private Equity. Others, such as Advent International, Barings and Blackstone, too, had heard the pitch but let the opportunity pass.

But Warburg didn’t. They invested at ₹162 a share—a significant premium over the market price. For Vaidyanathan, it was the proverbial escape-from-hell card. It was also a moment of quiet celebration when his mentor, K.V. Kamath handed his blue tie to Vaidyanathan as a memento to mark the personal milestone.

What followed in the ensuing years was nothing short of transformational.

Reborn as Capital First, the shadow lender built a ₹30,000 crore loan MSME and consumer book, and in 2018, merged with IDFC Bank to form IDFC First Bank. Warburg, who had earlier exited 25% of their investment in Capital First in 2017 at Rs. 727 a share, exited its balance stake profitably in 2023-24, netting an overall 8-9x return, a fair deal for backing a rookie entrepreneur.

That could have been the end of a well-earned partnership.

Chapter Two: The Encore

But then came April 2025.

Vaidyanathan’s desire to merge with IDFC to convert to a bank could even be his worst mistake. The bank mounted losses for six straight quarters, the longest streak for any private bank; he might as well have acquired a fresh bank licence. The bank emerged from the infrastructure and Vodafone exposure sagas, PAT rose from loss of ₹1,944 crore in FY19 to ₹2,957 crore in FY24. But 9M FY25 profit was down 44% owing losses in the microfinance business. Armed with this, he reached out to potential investors. He would request potential investors to look at the microfinance issue as a one-off and an industry wide issue, in an otherwise spotless decade.

Vaidyanathan believed the business was at an inflection point and what it needed was a stronger capital base. And this time, instead of launching a banker-led fundraising process, he did a Capital First encore. “I reached out directly. No investment bankers, no fee. Just direct.” he tells Fortune India, adding that he was exploring other private equity funds, too—but all direct.

The Return of Trust

Warburg listened—and came back. In parallel, he struck another long-term investor in ADIA. Together, they committed ₹7,500 crore, in one of the largest PE investments in an Indian private bank, with Warburg taking a bigger bite of the pie by investing ₹4,876 crore for a 9.5% stake.

“We had to go deep,” Vaidyanathan recalls. “They asked us unit economics, franchise strength, risk metrics, tech stack, regulatory view, long-term ROE path. Another potential investor even commissioned an outside-in survey to assess customer experience. When the results came in, they told us it was simply off the charts.”

What makes this story stand out is not that Warburg chose to back the same founder—at a different phase of his journey, with a different set of questions, but the same trust. Probably sentiment and strategy combined; that’s how business happens.

“They have hundreds of proposals. For our bank to be attractive and get the top of the pile is really something. Thanks to our board and teams for work over many years” says Vaidyanathan.

Even though Warburg’s return may seem like a continuation of an old story, but for the firm, it was a fresh investment—with fresh diligence.

“They went through everything all over again,” says Vaidyanathan. “They had to see the economics. We showed them how we have a strong model. Everything had to be answered. We told them just look through the MFI issue it a one-year thing and that our PAT growth journey will resume strongly,” reveals Vaidyanathan, adding, ”Our tech and customer experience was a big clincher.”

Vaidyanathan sees this access as the most telling indicator of what IDFC First has become: a bank that is attractive to an informed long-term investor. A business that’s not just stable, but scalable. The bank has maintained high asset quality: GNPA of around 2% and NNPA of around 1% for 14 years across cycles even as its loan book zoomed from ₹94 crore in 2010 to ₹1.97 lakh crore.

But why raise again?

“People often ask why we raise capital frequently. It’s simple: we’re born from an infrastructure DFI in 2016. We had low NIMs, at just 1.6% back then in 2019—so ROE is low, and growth is more. It was the only way out for this bank,” answers Vaidyanathan.

Nor does he shy away from the comparison. “Even ICICI, which we all admire, raised $2 billion in 2005 and $5 billion in 2007. That’s $7 billion, way back 20 years ago! Now look where they are. That’s how institutions are built. And they didn’t raise for 10 straight years after that,” he tells Fortune India.

The fact that when you need capital, people are willing to lend is a big vindication indeed. But that’s not without reason: the bank’s incremental economics has shown improvement over the years: with the ROE moving from 0% to 7% in six years. The bank’s pre-provision operating profit (PPOP) too has risen from ₹749 crore in FY19 to ₹6,050 crore FY24. The next target is to hit 15% ROE. “Then we’ll be self-sustaining on capital,” says Vaidyanathan. The fundraise is expected to help the bank drive its next phase of growth with capital adequacy surging from 16.1% to 18.9%.

Notwithstanding the one-off loss in FY25, the bank’s core operating profit has grown eightfold—from ₹749 crore in FY19 to ₹6,030 crore in FY24—even as the balance sheet has doubled.

In that context, Warburg’s return isn’t a white knight moment. It’s something rarer: long-term capital staying true to character.