IDBI Bank Limited (IDBI) Earnings Call Transcript & Summary

Good evening, everyone, and thanks for joining the call. On behalf of Batlivala & Karani Securities, we welcome you all to IDBI Bank Limited 3Q FY '21 Post Results Conference Call. We have with us today, the management of IDBI Bank Limited, represented by Shri Rakesh Sharma, Managing Director and CEO; Shri Samuel Joseph Jebaraj, Deputy Managing Director; Shri Suresh Khatanhar, Deputy Managing Director; and Shri Ajay Sharma, Executive Director and CFO. I would now request MD and CEO, sir, to start the call with his opening remarks on 3Q FY '21 results. Post which, we can start the Q&A session. Over to you, sir.

No presentation.

So thank you very much, and welcome all the participants to this investors conference. So I'd like to mention that there have been 2 developments in the current quarter for IDBI Bank. One was that we raised equity through QIP route. It was around -- it was INR 1,435 crore and total investors, 44 investors have come, including 12 FII participated in the QIP. Second was that we have completed the transaction for sale of IDBI Federal, 23% stake has been sold to Ageas, our existing partner. Now we hold 25% of the equity of this subsidiary. Now based on the performance, of course, the -- briefly, I will cover that the bank has recorded a profit of INR 378 crore as against loss of INR 5,763 crore during Q3 of last year. And there have been overall improvement in all the parameters. The PBT has increased by 12% Y-o-Y, and the operating profit has increased 28% Y-o-Y. It was INR 1,639 crore for the quarter. Then NII has also -- there has been a growth by 18%. And more important is that net interest margin, that it has improved by 60 basis points to 2.87%. So basically, like it has been possible to improve the performance by overall, all the parameters, not only like improving the other income part, but also making good recoveries containing slippages. And as far as the business performance is concerned, the CASA ratio was 48.97%, so almost 49%, which is, I think, the highest for IDBI Bank so far. And this -- there has been, of course, little -- slow growth for the structured retail assets, 1.93% were there. Whereas last year, we used to grow by 8% to 10%. So this year, basically, it was a strategic decision intentionally that we wanted to consolidate, especially in view of the uncertainties attached for the COVID. We thought it is better to consolidate our portfolio and then the growth can be in the range of 3% to 4%. But the next year, we can grow as we were growing in the last year. So as a result, the growth focus was less. But yes, during the current quarter, we have consolidated our position. In fact, initially, there were certain doubts that our moratorium was almost 47%, 48%. How the assets will behave. So -- but if you see the slippages, of course, because of that Supreme Court decision, there were nil, nil slippages were there. But if you take the pro forma slippages, it was INR 1,294 crore only. So like keeping in view the fact that the -- this INR 1,294 crores comprises of all the sectors. The retail SRA, where 48% moratorium were there, it is only INR 400 crores, which is more or less equal to what it was there before pre-COVID. So that is why -- that is how like coming back to business although CASA, 48.97% was there, but we have been able to show tremendous growth in the saving bank accounts. It was 14.58%, which is a stable deposit. Current account, of course, there was certain decline because it's more volatile. But overall, there has been growth of 5.69% in the CASA deposits. And the cost of deposit has declined from 5% last year, 5.02% to 4.18%. So mainly due to reduction of bulk deposits and reorganization of our deposit portfolio, we have been able to reduce the cost of deposit. And that is how the NIM has also improved despite the fact that the advances there is not much growth. Now coming to the -- again, asset quality part, as I was indicating that this INR 1,294 crore was the pro forma slippage. And our guidance for the year was that our slippages will be contained within 2%. And I maintained that guidance. Now the first -- this third quarter, basically, slippages are known. Fourth quarter, also more or less, it will be either in the same line or lower than that. So that way, we will be able to contain the slippages below 2%. And credit cost, our target was to contain below 2%. In fact, it may be below 1.5% also. So that way, like profitability parameters overall, there has been consistent growth is there. And this -- although I -- like because of the Supreme Court stay, this pro forma NPA and while our net NPA has come down to 1.94%. If we take pro forma NPA also, it was 2.75%. And our provision coverage ratio, in fact, it is the highest in the industry, 97% we have reached. Even if we take this pro forma slippage level, it will be 95.90%, which is again the highest. So that way, we have been able to contain the slippages. We have been able to make good recoveries. This quarter recovery was INR 961 crore. Overall, we have been able to recover almost INR 2,800 crores during the 9 months. And our target was around INR 4,000 to INR 4,500, and I maintained that target. So during the current quarter, I think we will be able to maintain to record a recovery of around INR 1,200 crores. This will be through various sources, through some NCLT cases. And through some one -- maybe assignment of debt or maybe onetime negotiation settlement. So -- but INR 1,000 crores to INR 1,200 crores recovery we are expecting during the March quarter. So overall, it will be in the range of INR 4,000 crores. And this SMAs also have been under control. In fact, if you see our collection efficiency ratio. So pre-COVID it was 94.5%. Post-COVID, it is 94%. So as I was indicating that the apprehension was about our high moratorium. So that apprehension is gone. We were quite confident that we will be able to maintain that recovery and collection recovery ratio. And this is now, I think we are quite happy to tell that the SMA level, it is basically around 6.4%. So that way, only 94% -- so 94% that recovery, we have been able to maintain it. Now if you see the pre-COVID level of retail SMA, it was INR 5,200 crores, which is now INR 5,800 crores. So slight increase is there. There is not much increase. Even this slippages, as I said that INR 1,294 crore. So that way, I think as the apprehensions, which were there earlier, so now should not be there, and we are on the right track. Now as far as the provisioning, as I had indicated 97%. But apart from that, we are holding very good provision under the COVID provisioning. Like INR 706 crore provision we had made till September, so it was INR 436 crores was mainly for that NPA provision and INR 270 crores for the restructuring provision. So during the current quarter, we have so far done around INR 700 crore of restructuring. So this INR 700 crores, that additional INR 70 crore, we have not used that out of INR 270 crores, but INR 70 crore additional provision has been made. So this -- and the remaining restructuring in pipeline is around INR 2,200 crores. With that, the total restructuring, which is going to happen is around INR 2,960 crores, so maybe roughly INR 3,000 crores, which is around less than 2.5% of the total standard asset portfolio. So originally, we had estimated that our restructuring under that RBI guidelines may go up to 5% to 6%. But that shows the quality of advances is good so that the collection is good. And the restructuring will be restricted to less than 2.5%. And in fact, in retail, if you see, it will be only 1.8%. There are -- total large corporate, it is INR 1,800 crore and retail advance is around INR 1,160 crore. And as I said, we hold adequate provision under COVID apart from that INR 70 crores we have already done, INR 270 crores we are continuing, INR 436 crore which we had made for NPAs, we have not touched. In fact, in addition to that, that for pro forma, NPAs, we hold INR 285 crore of provision which is held in standard asset -- standard provisioning and INR 84 crore interest also we have reversed. So there is no carryforward of any backlog. So in fact, rather, we are having more than the sufficient provision. So with that, one more last thing, well, I have to say, the capital adequacy and the PCA. So capital adequacy as we had raised capital during the current quarter, so the -- my CET1 was 12.22% and the capital adequacy at 14.7%, which is quite robust. And I think with this, we will be able to show 8% to 10% or 10% to 12% growth next year also. And the additional -- no more additional capital may be required because already for 3 quarters, we are carrying a profit of INR 800 crores. So the -- and then additional some March, whatever profit comes. So with that, we will be able to meet the capital requirements. So -- and as far as PCA is concerned, we are now complying with all the terms. For the last 4 quarters, we are in profit. As far as NPA is concerned, as against the 6%, our net NPA is 1.94%, even with pro forma slippages, it is 2.75%. So that way it is there. And LIC synergies are working out well with us. Now the way forward, basically, the last thing which I would like to mention is that now our target will be that we improve the net interest income. And once we are out of PCA, although at present, our corporate portfolio is 60%, but we are targeting same that whatever I had indicated earlier, 55% retail, around 45% corporate. And once we start growing, so the operating profit also will improve. And we want to maintain the growth of 10% to 12% next year. And the ROA and ROE, presently, for the current quarter, of course, ROE is 0.51%. But full quarter, it is 0.38%. So this year, we are expecting around 0.4% ROI, we should be able to achieve. And next year, 0.65% to 0.7% we will be targeting. And then of course, there will be focus on recovery will continue. And as I earlier indicated, credit cost and slippage ratio will be less than 2%. And NPA, of course, we had indicated that it will be less than 3.5%, but we have been able to contain it below 3%, so we will try continuing that. That for the current year, less than 3.5%, but from the next year, less than 3% and '22, '23, less than 2.5%. So with that, I will stop my presentation here, and we will go for the question-and-answer session. So thank you very much. Thanks for the patient hearing.

[Operator Instructions] The first question is from the line of Rahul from Centrum.

Yes, sir, I wanted to ask what is the collection efficiency in December and November? And also if you could share the restructuring number?

The collection efficiency, as I indicated, after pre-COVID is same, it almost continues at the pre-COVID level. Pre-COVID it was 95.5%, now it is 94%. So we don't see much significant change in that. As far as restructuring numbers are there, as I had indicated, total restructuring numbers are INR 2,960 crore, which amounts to less than 2.5% of my standard asset portfolio. Out of that 2,960 crore, INR 1,160 crore is for retail and INR 1,800 crore for corporate. So it's total like this. Out of that INR 2,960 crores, INR 700 crores, we have already completed up to 31 December. The remaining INR 2,256 crores, ICA restructuring has been invoked. Hopefully, this will be completed during the current quarter.

Sure, sure. Perfect. And also on this PCA, which you are indicating that you're meeting the threshold 3. So can you come out of PCA without making threshold 1 and 2? How does the [ book approach ] that? Please explain.

PCA, as you see, there are -- the total parameters the capital adequacy and CET, in fact, we are much, much above the mark as against 11.5% capital, we are 14.77%. Net NPA also it's less than 6%. We are at 1.94% and with pro forma 2.75%. Then leverage ratio also complied with. Now profit only this ROA should be positive. Now for the current year -- last year, of course, there -- although March quarter, we made a profit, but full year, it was a loss. But this current year, 3 quarters, we are already in profit, and the average my ROA for 9 months works out to almost 0.38%, of course, for the current quarter, 0.51%. So with this continuous profit of 4 quarters, hopefully, we should be out, but ultimately, the decision has to be taken by RBI.

The next question is from the line of Mahrukh Adajania from Elara.

Congratulations. Sir, I had 2 questions. My first question is that do you see any revival in CapEx? Are you getting any such proposals from corporates, which indicates that CapEx would revise, say, over the next 6 to 7 months.

Thank you, madam. One thing, of course, like before I reply to your question. Since we are under PCA, so we are doing corporate advances only up to new proposal up to INR 15 crore and existing proposals up to INR 25 crore. So first hand, I will not be able to get the experience. But generally, what we have seen in the market. So new CapEx, as you see, it's not coming basically. So now I think once this -- now the vaccine has come, the fear of this COVID is going on, life is becoming -- coming back to normalcy. So hopefully, the things should start improving and after the budget. So hopefully, because without new investment, new infrastructure development, new capital investment the economy cannot grow. So with that naturally, some investments will have to come. So once that starts coming, of course, by that time, we will also be -- we should also be out of PCA. So we will also start participating. But as I indicated that our ratio will be same that corporate, 45% and retail 55%.

Got it, sir. And sir, my other question is about bad bank. There are too many talks about bad bank. Are these talks real? Have you heard anything? Is it likely to happen soon? Or is it going to be a long-drawn proposal again?

I think a lot will depend on what direction the budget gives coming Monday. Because there are too many discussions, too many -- too much confusion also. The previous proposal as proposed by IBA, didn't find favor with the government then, but there seems to be some traction now, so we will have to wait for the budget.

Okay. So the IBA has already put forth the proposal is it or long ago?

That was long back. Again, what is being discussed in the press. There could be a proposal from the government to set up a bad bank. Beyond that, we are not privy to any other information. But going by press reports, there seems to be a case made up for a bad bank, we are not very sure.

[Operator Instructions] The next question is from the line of Bunty Chawla from IDBI Capital.

Congratulations sir, on a good set of numbers. My queries, as you have already highlighted, the restructured amount to be approximately INR 3,000 crores. And if I simultaneously see the provisions on the restructured, which is approximately INR 340 crores. So minimum requirement of 10% is already been taken care of. So we don't expect any such -- no more provisioning on restructuring efforts, right?

Right.

I understand. Right. Okay. Sir, secondly, with the pro forma also on the pro forma slippages of INR 1,300 crores, we already taken care of INR 285 crores. So we have excess COVID provisioning roughly around INR 440 crores. So can we say could be reversed in FY '20, not at least in Q4, but can be utilized or reversed in FY '22, if the asset quality, as we have suggested, should see the improvement going ahead?

First of all, thank you very much like you have rightly indicated. Number one, this restructuring provision that already we have. This is more than sufficient to take care of my provisioning requirement, number one. Number two, this -- that INR 436 crore, basically, that -- as per RBI guidelines, this provision can be used for making a provision like this INR 1,294 crore was there, for that, it could have been used. But we have decided not to use this provision and in addition, we have made INR 285 crore. So this as per existing RBI guidelines, this March, basically, we'll have to use this provision. But if RBI changes some instructions, then we will accordingly abide by that. But as of now what the instructions are, that this has to be utilized in March. And in March, it can be utilized against any provision rather whether against aging provision or the new NPA provision or any other provision. So as of now, the things stand like that. And accordingly, we'll go ahead.

Secondly, sir, on the SMA position, as we have seen slightly increase from Q2 to Q -- sorry, Q2 to Q3, there has been a slight increase in the SMA position. So as -- and you have already done INR 700 crores of restructuring in INR 2,200 crores of pipeline. Can we see this INR 2,200 crores as a part of this SMA-2 -- SMA 0, 1, 2 group of INR 7,800 crores?

Partly, yes.

Partly. One thing like -- first of all, yes, as you rightly said, that it has slightly gone up. But one thing we have to keep in mind that the moratorium was available up to August 31. So that is why in September number, this SMAs was not properly reflected. So we have the Y-o-Y, if we compare with pre-COVID time, that time, it was INR 7,894 crore and now it is INR 7,860 crore. So more or less, as I had indicated earlier, my collection efficiency is more or less equal to the pre-COVID level. So that way, it is -- it also reflects here. Now as you rightly said, that INR 2,349 crore is my SMA 2. So partly, yes, it may be there and partly the exact number, of course, because these are all small, small cases. Exact numbers some -- because partly, some of the accounts like in corporate who have opted for restructuring, they are not even SMA 0 also. But since they have been affected by COVID, they have also opted. Some of them are in SMA 1 now from the estimated. So partly, it is split over various...

Some overlapping is there, but maybe we can't put you exact number, but yes, definitely, it's a good sum, which is overlapping.

Okay. Okay. Sir, that was very helpful. Lastly, on the PCA part, as you -- last quarter also said you have submitted all the documents or the regulatory part has been already provided from your side to the RBI, only the RBI now discretionary to move out of the PCA. Any reply from RBI or any thought process you can share on that?

So as such -- so normally, it is customary that after every quarterly results, we inform RBI. So after this result, also, we will send letter to RBI that these are our performance numbers. So based on that, of course, they may take a view. But ultimately, as you know, this is RBI's prerogative. So let's wait for their decision.

And lastly, one data point, if you can share on the ECLGS scheme, how much we have disbursed up till December?

Which scheme?

Credit guarantee scheme, which you have given in the presentation, is it the final number up to December 31st.

So about INR 2,000 crore, we have disbursed already. Of course under both the schemes put together.

[Operator Instructions] The next question is from the line of [ Sunny Sehgal ], as an individual investor.