IDBI Bank (IDBI) Q4 2022 Earnings Call Transcript

IDBI Bank (NSE: IDBI) Q4 2022 earnings call dated May. 02, 2022

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the IDBI Bank Q4 FY ’22 Results Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Ms. Divya Purohit, from ICICI Securities. Thank you, and over to you, ma’am.

Divya Purohit — ICICI Securities — Analyst

Good evening, and welcome everyone on behalf of ICICI Securities. I welcome you all to IDBI Bank Limited results call. Today, from the management we have with us in Shri, Rakesh Sharma, Managing Director and CEO; C.J. Samuel Joseph, Deputy Managing Director; Khatanhar, Deputy Managing Director; Siri, P Sitaram, Executive Director and CFO. Thank you, and over to you, sir.

Rakesh Sharma — Managing Director and Chief Executive Officer

Thank you, madam, and good evening, ladies and gentlemen, and welcome to the IDBI Bank quarter four financial year ’22 and financial year ended 31st March ’22 conference call. So, I’m Rakesh Sharma here. Just to begin with, of course, the detailed presentation will be made by our CFO, Mr. Sitaram.

Just want to say some few words. One is that this last two years were affected by COVID as all of us know, and as far as IDBI Bank specifically is concerned, from May 2017 it was placed under PCA, and that PCA was lifted in March 2021. So that way, this last year was the first year when we were out of PCA. So, first half was affected by COVID also, that’s why performance was affected to some extent. But today when we are out of PCA and we are discussing about the financial results for financial year 2021, ’22, I’m happy to say that the Bank has achieved the turnaround and now turnaround has rehappened.

During this fours years period when we were under PCA, we have taken lot of measures both financial and non-financial. Non-financial. When I say, in as far as this organization restructuring, revision of all the policies, credit policies, risk management policies and strengthening the compliance part and strengthening other various measures, follow-up mechanism, collection recovery, EWS and all these things, which has helped us achieving the turnaround and which is reflected in the year ended results, which as I said, detailed presentation will be made by CFO. But main factors I will like to invite your attention that is the Bank has achieved net profit for the continuous two years. And during the current year, the net profit has increased Y-o-Y 79% and the ROA, we have been able to achieve 0.84% of ROA and 13.6% of ROE.

And the main issues during the last four years we facing was that our balance sheet was degrowing because we were under PCA, especially because of that the corporate advances, there was reduction in the advances level, though in retail we were growing at a robust pace, but the mid corporate and large corporate was showing decline. But now, for the first year, we have been able to show growth in all the sectors, retail as well as corporate and the overall growth has been 14%, retail has grown by 7.06%. So that way you know the growth momentum has started. Now our emphasis was also on reducing the cost of deposit and cost of funds, because we knew that since our — the advances side was not growing, rather it was degrowing and as a result, it was affecting our aggregate interest income and due to the declining interest rate scenario also, the overall aggregate income was affected, but we were able to reduce the cost of deposits substantially by increasing the low cost deposits. The CASA deposits have increased to 56.77%, which is I think one of the highest in the industry. And the cost of deposits also it has declined to 3.56%. So the savings bank at CASA, that current account, both have shown growth of 14%, both in percentage wise and amount while there is increase.

Net NPA which was around 17.30% as of 30th September 2018, it has come down to 1.2, 7%. And the GNPA also, which was 31% as on 30th September ’18, has come down to 19%. Of course, I will agree that the GNPA level is high. But the main reason is that we have not been doing technical write-off for the last three, four years because of some tax reasons. If you know the, our — do the technical write-off, all are 100% provided accounts, while GNPA will also come down below 2%.

The provision coverage ratio has increased to 97.63% and the capital adequacy also is quite robust at 19.06%, CET1 is 16.68. If you see that last time when the LIC and Government of India, they have given us capital in September 2019. So after September 2019, now two and half years, we have not raised except that QIP of INR1435 crores, which we had raised in December ’20, after that we have not raised capital. So whatever the growth improvement in capital adequacy has happened, it has happened through internal generation of resources. So we have been quite proactive in making the provisions, even the CFO will explain that stress asset stabilization fund which I had mentioned in the last year.

We had made assessment that how much shortfall is expected to be and accordingly we had made a short provision of INR2000 crores, and I can mention that out of INR2000 crores, 17 under provision was made when we were earning profits, so otherwise the profit would have been higher by that amount. But now this quarter also what we have does as a proactive measures, whatever is the balance securities are remaining, those recoveries may happen, we have made to the full provision, although the time for SASF is up to 30th September 2024, two more years are there. We have made full provision for the outstanding security and whatever recoveries happen in the next two years or if we decided to pre-close the SASF, so that the recoveries will add to the bottom line. So that way, like you know the; number, one proactive provisioning has been made, the balance sheet has been strengthened, turnaround has happened, and now since we have started growing also in the total revenue also you will start seeing the increase from this year onwards.

So with that preliminary remarks, I will hand it over to Mr. Sitaram, CFO, who will give you the detailed presentation. Thank you.

P. Sitaram — Executive Director and Chief Financial Officer

Good afternoon, everyone. So if we go to Slide number 5, the major highlights for the financial year. The profit after tax has improved by 79% to INR2,439 crore, operating profit has increased by 7% to INR7,495 crore, NII has also improved by 7% to INR9,162 crore, NIM has improved by 35 basis points to 3.73%. And if we exclude the impact of interest on income tax refund, the NIM stands at 3.59% for the year, which is also a similar improvement, in fact a bigger improvement of about 73 basis points over last year. The ROA has gone up to 84.84% and the ROE stands at 13.6%. Overall the cost to income is at 45.89%. This includes the impact of the entire amortization that we had taken for family pension of INR266 crores. If we had restricted ourselves to only the period charge-off, then it would have been lower to about 43%.

Capital adequacy, as already mentioned is quite comfortable and arguably is control, in fact there is a marginal reduction. Overall, it stands at about INR1, 54, 000 crore. Cost of deposit and cost of funds have improved, not only in tune with the movement in the market interest rates, but also due to improvement in the composition of funds for us in terms of CASA. Within that, both CA and SA have shown improvement. CA had dipped in between the RBI mandated correction. But after that, again CA has also started showing improvement and now SA is also improved. Overall, both in terms of amount and percentage it has reached to 56.77%, and that is a growth of about 6.3% compared to last year. And now the Retail Corporate is steady at about 63.37. This is more or less where we had targeted it to be. And going forward also we are looking at it more or less, plus or minus a few basis point here and there, it will be on this line. The net NPA has improved significantly to 1.27%, GNPA without any technical write-offs has improved by about 3% to 19%, and PCR as somewhere improved by 70 basis points or so to 97.63%.

So coming to the next slide, so I think I have covered all this. As I mentioned, the family pension effectively if we remove, then the cost to income would have been even lower than this. However, we were committed to RBI to maintain a cost to income below 50, and we are well within that

Now just coming to the Slide 7. So, here again, as I said, the net NPA, the GNPA and the PCR that I’ve already mentioned, have shown significant improvement and capital has consolidated to 19%. There is a reduction in the RWA by about 185 bps year-on-year. On Page 10, the Slide 10, we have a snapshot of the P&L. The improvement if we compare March ’21 to ’22, in the NII, there is an improvement of 7% in the total income of about 6% and in the operating profit of about 7%. In this, if we exclude one-offs, that is INR1,300 crores interest on refund of income tax received in fourth quarter of last year and correspondingly INR350 crores in the third quarter of this year, then the improvement is even better and NII has improved by 22%. The net total income is 15% and operating profit has actually gone up by 25%.

Coming to the next one, a little more detail on the NII. One can see that on a year-on-year basis there is an improvement in the interest on advances. However, the interest on investments has come down. This is largely because we have capitalized on the interest rate in the Q1 and we have sold off to record our valuation gains. And other interest income, there is a reduction. That is mainly because of the movement and the interest on refund of income tax. The interest expenses have moved in line with what I have said, that is both in line with the market rate and also the change in composition of the liability profile. Overall, the NIM percent which is with and without that effect of the interest on the IT refund we have given here, in whichever way you look at it, there has been a meaningful improvement in the performance of the Bank.

So that next slide, it gives us just how the buildup has happened, what’s the PAT for the quarter as well as the PAT for the full year. And on the PAT for the full year, you can see that the NII and there is a reduction in provisions and contingencies have been the major contributors to that 79% improvement in the PAT for the financial year.

We come to Slide number 12, there is the breakup of the other income. Again, more or less in terms of commission fee and brokerage, we have maintained the trend of the last year and with actually our entire post PCA activity commencing towards the second half of the year, we look forward that this contribution from the commission and exchange and brokerage will come now not only from a growing retail, but also from enhanced activity on the corporate side. Profit of investment, as I said, we had recorded along with the industry at the time when the top opportune. Now, possibly going forward, that would be a little muted.

Other things, on the Forex, of course, it is recovering from written off cases, we have done well this year. But going forward, a number of large ticket cases would be less. Therefore, one can expect that recurring from written-off cases would taper off a little over the next year. [Indecipherable] will maintain around the same level that we have.

On the next slide is the provisions and contingencies. Here, the main feature we have done, I think the main feature that I would like to point out here is that we have — we had pointed out — we’ve made full provision for the outstanding amount of the bonds, representing our interest in the SASF. The reason that we have done this till last quarter, what we are doing is estimated in the remaining possible recovery for the three years of the residual period and providing for the balance. However, we took a call now, so that we could have our hands free to decide on the future course of action on what we can do with the SASF. With this, now we are on much more flexibility and to take much more pragmatic decision to ensure that the value which is deciding in the SASF, we capitalize on it in the best way possible. We will explore all avenues now that it has been fully provided.

We have not done any technical write-off in this quarter, so whatever bad debts written-off is right up to December, plus whatever on the — what has essentially required on the retail and SME side. Other than this, we have done every provision that is required as per RBI norms both for the non-performing standard asset as well as the restructured asset.

So just coming to the next slide on the yield ratios, yield has improved a little for the financial year. If you see that both on quarter-on-quarter and year-on-year, it has improved. However, having said, these trends will reflect the movement in the market rate as we go along and as we improve our corporate book activity.

Now on the NIM, we already mentioned that it has improved to 3.73%, it includes the impact of that interest on refund — without that it is about 3.5%. And the cost to income has also improved. As I mentioned, it includes the impact of the one-time write-off on family pension benefit. Now coming to the next slide, this is the trends in the cost of funds, cost of deposits. These are figures already known to you, you are tracking the Bank. It’s in line, as I said with the movement in the industry as well as the changing in composition of liability profile. Coming on to the balance sheet, this is basically, this time we have crossed INR3 lakh crore as balance sheet size and the advances overall have grown on a net basis by about 7% and gross advances by about 10%. We will discuss the future trend at the end.

Then coming to the next slide on the business performance. This again summarizes what we have, MD and I have stated till now, that is the total deposit has grown and the composition in that deposit in terms of current account, in terms of savings account, also in terms of retail term deposit has has grown. Overall term deposit seems to have declined from 49 to 43, but that term includes the bulk part of, sorry, in the bulk now it has come down from 11% competition from last year to 5%.

Coming to the next slide again quickly, I’ll say that the book of savings and the book of retail, book of current all have grown and we return to the overall deposit profile has also improved.

Coming on to the subsequent slide, this is the gross advances pickup. More or less as I said that we had stabilized at about the mix of corporate and retail, and I think that’s where we’ll be maintaining, plus or minus some 3% to 4% on either side. This would be the trajectory going forward. On the structured retail asset, we continue to be heavy on the home loan, the mortgage and the sectored home loan, bet we will, as we had said earlier, we have put in place systems and we are also looking to activate various other products both on the MSME and the Agri and on other retail loans to widen the portfolio base and also to enhance the growth from all possible component.

Gross advances, as I said, have grown by about 10%, and largely we now have advances booked in the GIFT City as a result, its all domestic. Breakup of these advances, you can see that first of all, on the corporate and retail as I mentioned, while it is fairly steady direction in which it is going, standard gross advances also. More or less the composition is stabilized now and so the ratio between corporate to retail is also on a very — even and net advances have shown an improvement of about 7%.

Priority sectors, which is the next slide, we have achieved all our targets and overall of the PSLC, which has bottom sold, we are net positive, and which has contributed to our P&L. On the treasury operations, again in terms of modified duration on the AFS book, we are well placed to the meet the rising interest rate scenario and overall modified duration results are fine. Even in terms of PV0 and also, we are quite comfortable. So here we will go on to the next slide, that is on Slide 26, the COVID-19. An this, as far as the restructuring is concerned, we are maintaining all the required provision. As per the outstanding balances, we are maintaining that INR415 crore provision. And then in the earlier provisions that we had made, out of that two components we had taken out and on that now, as I said that, we have also made new provisions that I already described here, both in terms of family pension full amortization, also in terms of SASF full provision.

On the asset quality, nothing much to add. There is — we have not done any technical write-off, so beside that that based on the recovery that we have achieved and other settlements, the gross NPA has improved to 19% and net NPA has significantly improved to 1.27%.

So the next slide is on the NPA movement where we had given our achievements in terms of settlements, upgradation and the written off. The advances portfolio includes this time of an amount of about INR9,000 crores under reverse term repo. This is as per the recent RBI master circular. We had given the some of those figures with and without all this so that you people can analyze the way you would prefer to.

Now coming to the NCLT, this is the position. More or less, I mean, NCLT now, as of now that things are stabilizing, we can expect that in this year there will be a little more movement in expectations pertaining to NCLT and perhaps some amount of recovery is possible, but big ticket cases are not so many there. In terms of volume perhaps it will increase, but in terms of amount it will be not as significant as it was earlier. On the SMA, it is an improvement overall to about 3% of the portfolio now total, out of which the SMA zero is quite small. And this is of course taken into account the restructuring that we had done under RF1 one RF2. We’ll be watching that portfolio as we go ahead and as of now it is not possible to say exactly how that portfolio will behave. Definitely requires to to be looked at and watched closely and which will be monitoring quite closely.

The capital slide, I have nothing to add. We already discussed it. Shareholding pattern, again, there is no, nothing much to mention, it is more or les the same. This is just bit about the digital footprint that we are having. In financial year 2021, out of the customer-induced financial transaction, about 91% were digitally routed and in this year it has improved by 3% to 94%. And you can see that out of that, the large set to share has been taken by UPA, which is no surprise. I mean, there have been so many paper reports upon this is phenomena.

And now coming to the next slide, this is the overall digital footprint of the Bank, which is improving. Now that we have come out of PCA and everything, we do have much more freedom now and we’ll be working a lot more to improve this footprint through various other emerging means to engage the customers and improve our business. A snapshot of all the digital products that we have introduced and are introducing. And you will continue to see some more announcements and actions on this side as we go forward into this year.

On the Financial Inclusion, I think that need not spend too much time on this, suppose like both the mudra or achievement on the. So we come down the subsidiaries, all our reported profits and improved profitability. I think just on the last slide on the guidance. Going forward, next year we are looking at a growth rate of about 10% to 12%. And as I said that, 63:37 [Phonetic] can go to even 60:40 [Phonetic], a little here and there, but around — this is the balance that we would like to maintain. The credit cost and net slippage, we expect the credit cost improve to about 1.5% and slippage also we expect it to improve to about 2.5%. This 2.5% is also because of that. RF1 and 2 book that we have, which — that we have to see how that plays out.

On the ROA, we expect now to 1% next year, they’re poised to do that. And ROE, of course, above 14%. And CRAR, we’ll definitely maintain above 15%. On the GNPA, one is of course there is a possible transfer to NAFCL, both the size. That and plus recovery altogether, I think we would be looking to bring down the GNPA to about 40% to 40%. And on the NIM, we’ll be looking to maintain at least 3.25%. On the retail offer, as I mentioned, we are — much more detail color will be given by DMD and MD. But, we’ll be working on many fronts to improve and broaden our retail portfolio. Cost to income, we want to maintain below 48% and that’s it I think as far as the coming year is concerned, these are some of the highlights that I wanted to mention. I will stop here and we can [Technical Issues]

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