IDBI Bank Limited (IDBI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the IDBI Bank Limited Q2 and H1 FY 2021-‘22 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kunal Shah. Thank you. And over to you, sir.

Thank you, Aman, and good evening, everyone present on the call. This is Kunal Shah from ICICI Securities. Today, we have with us Mr. Rakesh Sharma, Managing Director and CEO; Mr. Samuel Joseph Jebaraj, Deputy Managing Director; Mr. Suresh Khatanhar, Deputy Managing Director; and Mr. P. Sitaram, Executive Director and CFO from IDBI Bank to discuss their Q2 and H1 FY '22 earnings. So now over to you, sir.

So thank you very much, Mr. Kunal. Good evening, ladies and gentlemen, and welcome to the analyst call meeting for our Q2 results for the financial year 2021-‘22. First of all, I'd like to start on a positive note. The good news is that the COVID impact is coming down and the country has completed 100 million mark of vaccination today itself. So that -- with that, hopefully, further the impact will be coming down and the normal position will arrive. Even in banking industry, we have started seeing improved performance and the collection efficiencies and the overall improvement in the financial parameters. So with that, I will like to mention that IDBI Bank, our net profit has -- for the current quarter has increased to INR 567 crores as against INR 324 crores in September 2020, showing a 75% improvement. And the operating profit, NII and NIM, all have shown improvement. There is improvement in the reduction in gross NPA and net NPA also. Similarly, the CASA ratio has reached high level of 54.64%. And the net NPA are 1.62% as of 30th September 2021. We continue to hold the highest PCR of 97.27% and the capital adequacy at 16.60%. So detailed presentation, of course, will be given by our CFO, Mr. P. Sitaram. But I will just like to mention that at the beginning of the year, we had given certain guidance parameters. And I'm very happy to tell you that we are doing much better than that. And all the parameters, whether it is improvement in operating profit, net profit, reduction in NPAs and the ROA and ROE, we have been able to achieve -- rather overachieve the estimates. Except for one thing, which, of course, we are aware that the growth in advances, both in retail and corporate is muted one, but there are sanctions in pipeline for corporate advances, and we are quite sure that there also, we will be able to achieve the guidance, which was given by us. So around 8% growth. In retail, although home loans have grown by 4%, overall retail portfolio is a growth of 3%. But now for the first time, our MSME agriculture has started showing growth, and there was YoY growth of 6%. So there also, I think in the meantime, we were quite aware that during COVID situation, we should focus more on monitoring part so that we can stop the bad impact of slippages and that we have been able to do successfully. So we are in a consolidation mode. But now during the second half year, we will try to grow so that we are able to achieve the estimate of 10% growth of retail advances. CASA deposits, there has been very good growth, and that's how we have been able to reach 54.64%. There has been rating upgrade by ICRA also. They have improved our rating by one notch. So that's a positive sign. And -- so with that, I'll not take much time. I will hand it over to Mr. Sitaram. So he will give you the presentation. And thereafter, we can have the question-and-answer session. Thank you very much.

Good afternoon -- good evening, rather. So I will not dwell too much on this first couple of slides. So this is on the highlights. So the MD has already mentioned the major parameters. What I would like to say here is that if you compare the September to September, there has been a significant improvement in the bank's operation. Now if we look at sequentially compared to June 31, apparently on the face of it, there are some reductions. But I would like to recall what we discussed last time that there were 2 or 3 one-off items in the first quarter that we had discussed in detail in the last con call. One was on the recovery from the Kingfisher and other cases. That has given a onetime spike to the interest income in that content. Then although we have sold some G-sec to realize capital gains and take advantage of the interest movements. So that are also given a onetime spike in the other income. Due to which -- these factors, so apparently, the Q1 figures are showing the better picture than Q2. But if you take away the impact of these one-off items, the performance of Q2 is very much comparable to the Q1 quarter. So then the individual numbers, I will not dwell upon. Most of it has been already mentioned. I will take you to Slide #7. Here it says net NPA, which is now at 1.62%. It has improved. Then GNPA has also improved to 20.92% and PCR continues to be high. The PCR is inclusive of technically written off capital. This is at 97.27%. Overall, the capital adequacy continues to be quite comfortable. And of course, this is without the cumulative profit, which we will take into account at the end of the financial year. Now coming to the profitability. The movement between Q2 of last year to Q2 of this year as well as the half year has been analyzed in terms of its components. So you can see that the NII has had a major role. The improvement in NII given the improvement in both the moment. Then we had contributions from other operating costs. There has been some reduction there. Then we had the provisions and contingencies. Now that we have made over the past 3 years of the PCA, quite a large amount of provision. Gradually, that intensity is coming down because we have continued to be at a higher level of PCR. So overall, both quarter-on-quarter that has shown an improvement of 75%, half year to half year has shown an improvement of about 150% in terms of profit after tax. Now coming to Slide 10. This is the PL breakup. Again, I will not dwell too much except to again emphasize that June '21 numbers show a spike because of those one-off that I mentioned. Interest income is inclusive of those onetime items. Other income is also inclusive of that. Otherwise the employee cost has… [Technical Difficulty]

Ladies and gentlemen, thank you for your patience. We have the management line reconnected. Over to you, sir.

Yes. We have lost some time. So we'll try our best now. So I will straightaway take you to -- this is on the provision, so Slide #12. So what I wanted to say was that there are certain movements of provisions, which are reflecting in the aggregate provisions in the profit and loss account. So one is that because of the regrouping due to RBI Master Circular, the depreciation on investment, which was being shown under other income is now shown under provisions and contingencies. Second, the provision for NPAs, it shows that a write-back of INR 1,426 crores. Why such a huge negative figure is coming is because of 2, 3 reasons. One is that the cases where we have done settlements, large cases, which are fully provided, not written off. Then the -- to the extent that the amount is not recovered, we show it as write-off that is given below bad debt written-off INR 1,023 crores. Corresponding to that, the provision which is being held is shown as a write-back. So you'll find that write back here. That is one. And second, we had this one case. All of you are aware in Calcutta, that [Sri] Company. So that is under High Court order. it was not classified as NPA. We have made the full provision, which are shown under standard asset provision. Now on the case being marked as NPA after the High Court has permitted it, it is -- now the provision has come back to NPA provision. And therefore, overall, this also includes the provision for the first-time NPAs during the quarter. We had a slippage of about INR 1,440 crores. On that also, there is that provision here. So overall, if you take all these plus/minus together, that is the figure. Then we have also made some amount of like in last quarters, wherever we feel that it has the potential, we have made some provision for standard assets. Besides that, we also have this Restructuring Framework 2.0, under which whatever we have restructured, the details of that we already given in our stock exchange relay. So the corresponding provision, we have given here about INR 76 crores. Income taxes, there is no current tax provision because we have this carryforward. So to that extent, we have a DTA, the reversal of about INR 207 crores. Bad debts written-off, I already mentioned. And the recovery from written-off cases, again, this is shown as a positive, that is a negative in brackets here. That the reason is that earlier it was shown as income under other income, again, due to the new Master Circular, we group it as a reduction for provisions and contingencies. And overall other provisions are there, some NCLT cases and ICA, all that. So those [indiscernible] all provisions together at INR 132 crores, taking the quarterly aggregate to INR 642 crores. This is one thing I just wanted to take 2 minutes to explain this slide. So again, in the interest of time, I will straightaway take you through the liability profile on Slide 17. We continue to maintain a healthy liability profile. CASA has improved further to 54.64%. Both components of the savings and current accounts, both are holding steady. So just 1 minute. Hold on please. I think we'll be switching from a mobile phone to the regular phone. Please hold on. Now I was on Slide 17, the liability profile. So we continue to show the improvement. And I would like to say even that component of bulk deposits has further gone down. It is now practically 6.36%, which now is hardly any concern. But one thing is to be remembered that is going forward, it may not be within this financial year, but sometime or other, as the corporate book grows and as the need for funding increases, we would look to fund a part of that also through bulk deposits. It is not negative to have better -- a higher proportion of our deposits because 6 is really, really low, even healthy banks have a higher ratio than that. But that sort of thing we look at as and when some amount of growth builds into the balance sheet. So then on the next slide, we are just given some more details of this liability portfolio. So again, in the interest of time, I will skip over this. We'll come to Page 19. This is on the advances. The retail advances continued with a high level of about 67% of the total advances. Just -- as I have just now mentioned, as we reenter the corporate market in a slow but gradual way, the amount of retail portion will come down. But we continue to remain committed to the strategic position that we will not go back to those days where we are corporate heavy. We will continue to focus on having a majority share of retail in our portfolio. Within that retail portfolio, we still have -- and traditionally, we have been heavy on the home loan portfolio, which is a fully secure portfolio and well-performing the portfolio that we have. There's a certain components like LAP and all that, where we had some amount of bad experience. We already discussed that in previous calls. We have put a control on that. Even personal loan also is a component of about INR 600 crores only out of this. So we continue to maintain a portfolio which is secure, relatively healthy and better ending even on retail. But we'll look to grow here, again, on the same principle that with the adequate controls and with the adequate emphasis on the quality. Priority sector, we are fairly well placed. This is on the next slide, Page 20. We have -- of course, part of it is because the advances portfolio has more or less remained steady. So we have been able to catch up with our peers there. We are fairly well [indiscernible] and earlier in the other cost and other income, I have mentioned that [indiscernible]. So you can see that the -- as and when required in any certain segment where we are falling short up -- where we are excess, we are able to either invest in PSLC or even generate income by selling the CSL. Treasury affair -- again, I will not dwell on this. Overall, I'll only say the modified duration, which is given here, this includes both the entire portfolio is 4.52 including the STM. And for AFS, it is just 1.09. So we are fairly well placed to address the -- what are likely changes that may happen in the interest rate as we go forward. On the COVID provision, we have given whatever is the provision that we have. We have well and adequately provided for any stress that may emerge on the COVID-19. On the outlook side, what we are seeing is that definitely, the amount of stress that has emerged due to COVID-19 is not as much and quite well below what was apprehended when we started making this provision. The asset quality is depicted in the next slide, 25. Again, I will not dwell too much on detail. You are familiar with the trends in our numbers. So the overall net NPA stands at 1.62 and provision coverage stands at 97.27%. One minor detail, which I would like to mention, this is the -- the RBI has in the Master Circular said that when there is a reverse repo, which is not an overnight reverse repo, we have 7 days and 14 days that we have classified under advance based on our understanding of that circular. So that because the advances as the sum has increased that net NPA percentage, even both from the current quarter and we recast from the previous period also. So the comparative is on the same level. NPA movement is given on the next slide. Overall as I mentioned, the slippage has been [about] INR 1,400 crores, and there is existing NPA increase of [about] INR 100 crores. But the settlement upgrade as well as the return of due to -- I think put together, it's much higher than that. So resulting into a net decrease in the NPA. It has come down to INR 34,400 crores from INR 35,594 crores. The slippage ratio has been 2.2%, but we expect that overall for the year, it would be -- there not be a multiple of this, that will annualize. It will be estimated to about 3% for the full year. And the credit cost for the quarter is 0.3%. But overall, for the half year, it has been 0.6%. We expect that for the full year, it will be about 1.5%. Then the next slide, again, we'll not dwell on it. It's just a position on the NCLT cases. On the Slide 28, you'll see the SMA position. In June, we have seen the status of the SMA position and some concern was expressed on the increase in the SMA-1 position, now -- sorry, SMA-2 position. Now you can see that it has come down. There are 2 reasons for that. One is, of course, at that time, we are assured that we'll be doing active follow-up and we are very confident that several of these problems, which are in that SMA-2 category will be addressed. And we have just due to -- it was mentioned last time also that some structural changes have taken place in the bank. We have now dedicated verticals attending to this sort of as above and this has given the results. In addition to that, we are also -- in the restructuring slide, I have mentioned that we have done some amount of restructuring for the RF2. So that has also resulted in reduction in this SMA category. So overall, the SMA position is looking quite better now. Capital, that is Slide 30. We are fairly well placed. Nothing more to say. We have already mentioned the figure. And this next slide is on the shareholding pattern. There's again, nothing -- no major development in the quarter, which needs to be mentioned here. On the digital footprint and all these, these are the numbers which we have given here. We continue to focus on improving the digital footprint, which is in line with the industry, and we have taken technology initiative. And also, we have taken manpower initiative. We're taking people on board now from outside that will help us both in our IT initiative as well as the digital banking initiative. We hope to enhance our digital offerings. We also hope to enhance the IT and digital experience of the customer and thus give a much better digital footprint going forward. I will not go into all these subsequent details. In the interest of the financial inclusion also the figures which we have given here or there, I will not dwell on those. Straightaway, the subsidiaries that we have given position is on Page 40. All are profit making. They are positive and they're giving us a return. The way forward, we have the 2, 3 items which are mentioned here, some of which I have already discussed. Credit cost, we expect to be about 1.75% for the year. And the next repays will be 3% or less for the year. We also said that the net NPA level would be at the most 2.5% by March, and we aim to bring it down further to the 2% in the next couple of years. And the NIM, as I said, we will look to maintain at least 3%. Now these are -- this comes to the end of the presentation. I'll stop here so that we can start taking your questions.

[Operator Instructions] The first question is from the line of Pranav Tendolkar from Rare Enterprises.

Sir, I have a few questions. So just be patient with me. So total restructuring, including COVID restructuring is how much? So your press release suggests that it is around INR 5 crores to INR 6 crores, that is COVID restructuring. And about that restructuring total, if you make, how much it is?

Yes, COVID that restructuring we have given that these -- there were one regulation framework 1.0, then 2.0 and MSME. These 3 parts are there. So in one, it was a total 1.29% of our standard advances.

But can you just tell me the absolute numbers, that would be easier.

Absolute was INR 1,619 crores. And second was INR 1,993 crores, which is around 1.59% of the total standard advances. And the third MSME is INR 569 crores. So total mix INR 4,181 crores, which is equal to 3.3% of our total standard advances, which is well within the estimated notes.

And before COVID, how much it was?

Before COVID that there is other standard restructured [indiscernible] These are all under COVID. Standard restructured advance is up other than the COVID.

I would say you can get to that figure as we progress in the call. We can take the next question.

Sure. And so the mention that you have made on the Page 2 of your press release, the format A and format B and then there is a INR 5,826 crores figure and INR 5,722 crore figure, where is this figure coming from? So there are 2 tables format A and format B that is according to RBI that you have presented, and there is a INR 5,722 crores figure on the column B of format A and column E of format B that is INR 5,826 crores.

That is in the [top center].

Yes. On the second page after all the release press result tables are there. You have mentioned that.

See this figure, which is given here in format A and format B, that's exposure. First of all, exposure includes even non-fund-based exposure, and that is the exposure as of the time of restructuring. The figure which has been given by [NV] now, that is a fund-based outstanding, and that is as on date that is 30th September.

Sir, second question is on -- the NIM that you have produced in June, that was 4.01%, so you explained that there was an income reversal -- interest income reversal on Kingfisher. So what is the sustainable NIM here? And what was the impact in last quarter of Kingfisher? So I missed last quarter call. So sorry for that.

So the sustainable NIM is what I had mentioned, we are looking at maintaining a NIM of 3%.

More than 3%.

At least at this level.

Right. So 3.02% in this quarter would be the bottom.

Yes, this is the run rate that we'll be expecting. Some quarters, you can expect a spike. And because we were -- the bank exposed to lumpy corporate, which we have provided. And so sometimes when a recovery happens to that extent, there's a spike to that.

So sir -- one-offs, how much was the NIM for last quarter?

It was [INR 4.4] -- excluding that, it was 3.10%.

Sir, second thing is that you have mentioned there are 3 advances, right? So there is one advances which is balance sheet advances, which is [next] of problem assets. Then there is gross advances, which is around INR 160,000 crores. And then what happens is that you have mentioned also 2 types, that is one split includes services and one split doesn't include services. So what is the difference between it? So on the Page 19 of your slide, there is a gross advances as on September 2021. In one thing, you have mentioned so the split that you have given proportion, 37% corporate, 12% MSME, 13% agri and 38% retail. And then on the bottom right corner, there is also part of services, which is around INR 24,889 crores. So where the services go in this table about? What is the proportion, like where it is included here because the calculation gets confusing a little bit.

Because services can be in both corporate and retail, so it's different because services is the industry categorization given by RBI based on the harmonized industrial classification, which government has adopted in there. So that service industry can be a large one. For example, if you take something like a security agency, or anything else. Then there can be a small-time agency, which is offering a say cleaning services. So this should become a SME business or something like that.

So it is better to take that INR 60,093 crores, which is a personal loan. That is an actual retail figure. And you should not take the personal loan as INR 52,806 crores in the just chart below. That is right. So INR 60,000 crore is the correct?

Exactly.

Sir, second thing is that there is a employee costs Q-on-Q, if you see employee costs. So this quarter, employee costs were around INR 698 crores and the same quarter last year were around INR 789 crores. So what is all included in this figure? Is it the latest BPS included in this -- is the pension assumptions are be provided for. So can you just spend some time on what will be the actually employee expense per quarter going forward in this year and next year?

Yes. So 2 things happened. In September '20, first of all, we were going towards bypass a settlement. So we were making provisions for that. So that provision based on the estimates from quarter to quarter, there are some fluctuations based on the latest position in the negotiation and what was the intimation coming from IDBI. Then the second thing was, of course, the movement in interest rate. The movement in interest rates affects the valuation of employee benefits, particularly the retirement benefit. So this year, the interest rates have been fairly steady. They have not impacted the valuation of retirement benefit so much. Also, the provisioning for the coming settlement that has been done already because the settlement is already in place. The risk scales have taken effect. So it is coming as a regular. We don't have to make some estimates that will keep fluctuating. So due to these factors, one has seen the variation between Q2 of last year to Q2 of this year. So the employee component more or less is the same. We are not INR 700 crores.

So INR 698 crores to INR 700 crores will be the per quarter expense this year and next year, we could assume...

The valuation of employee benefit will impact. We are looking to the situation now where the rates have bottomed out. So now if not next quarter, going forward, by March or elsewhere, there will be some impact on retirement benefit that will become.

If interest rate goes down, no? If interest rate goes up…

Then correspondingly, there will be a [indiscernible]...

If it goes up, then there will be no additional requirement, but we normally do not write back. We are not writing back. But if there is a reduction in the interest rate, then we have to make additional provision.

We cannot write back also because it is a funded liability. So we cannot take that money from the trust.

So if the interest rates are rising, then to that extent, we will be saving on that one. Only expenditure part will be there. Yes, additional burden will not be there.

Sir, second thing is that on the other income split, can you just -- maybe I'm missing it, the split between core operating fee, ForEx and treasury profit out of INR 846 crore, can you just give me a split for that?

Yes. So in this quarter, we had a commission exchange brokerage of about INR 436 crores. And the valuation of investment, that profit is about INR 205 crores. Sorry not valuation. Sale of investment is INR 205 crores.

That is INR 405 crore?

INR 205 crores. And there is a net revaluation loss of INR 32 crores.

So that is minus INR 32 crores.

Minus INR 32 crores. Then the ForEx income is about INR 170 crores. The dividend is INR 13 crores. And then we have some miscellaneous income. All together is about INR 54 crores. That is actually INR 840 crores.

Perfect. Sir, same figures for last year and last quarter, will it be possible to give?

Yes, sure. So okay, I'll read out, but it might be difficult for you to note down all the details. We can send it to you by e-mail also. Okay. I'll read it out. For September '20, commission exchange brokerage INR 424 crores and profit on sale of investment INR 499 crores, valuation loss minus INR 135 crores, then there is a ForEx income, INR 26 crores, dividend income INR 8 crores, miscellaneous income INR 59 crores. In June '21, commission exchange is about INR 404 crores, the profit on sale is INR 690 crores. This is the first quarter sale [indiscernible] that as we had discussed earlier, that is because that the interest rate was positioned as favorable and use that situation and [uncashed] the gains which are there. And profit on revaluation of investment is a plus -- instead of minus, plus INR 92 crores. And we have the ForEx income of INR 164 crores, dividend income of INR 26 crores and miscellaneous INR 23 crores. The aggregate is INR 1,400 crores.

And was there strategic sale last year same quarter, something like that?

On the profit on sale of investment of INR 499 crores.

So in that, there was some sale, right?

Yes, there was sale of both NSDL. So you want that figure?

Yes. So that INR 499 crore was not all treasury, it had some strategic sale, if I remember correctly.

Yes, there is. Sorry, INR 110 crores.

INR 110 crores was from NSDL?

Yes.

[NSD].

[NSD]. Okay. So also during the introductory remarks, you mentioned that there is a reclassification of other income and provisions. Can you just explain that for a little bit detail?

Very simple. RBI has [indiscernible] the recovery from return of cases should be shown in provisions and contingencies because probably the logic is that since write-off is being shown there, recovery also should be shown there.

That's why your June provision is changed in this presentation from last presentation. That is the reason. And other income has changed correspondingly.

The second reason is that where investment where it is a few mark-to-mark minus coming because we are not allowed to take plus anyway. So mark-to-mark -- purely mark-to-mark minus that is shown under other income. That is a nonperforming investment as per their norm. And we make a provision as per the norm for NPI. That provision is to be shown as provisions and contingency. So that also we shifted to provisions.

And sir, what was the provision for [Sri] that you did for this quarter? I understand you just mentioned that it was standard provision and now into the...