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 4Q FY '21 [ Financial Results ] Conference Call. We have with us today the management of IDBI Bank Limited represented by Shri Rakesh Sharma, MD and CEO; Shri Samuel Joseph Jebara, 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 4Q FY '21 results, post which we can start the Q&A session. Over to you, sir.

Thank you very much, Mr. Bhavik, and good evening to all, and thanks to all of you for attending this [ on call ] conference [indiscernible] had indicated last time. So we wish that soon this condition will improve and that we will be able to meet in person so that we can interact. But okay, now we have to do through the telephone [ only ]. So these results, which I'm happy to present the annual results for IDBI Bank, so these results have to be seen in the context that last year, the entire full year was affected by the COVID situation. We had a very challenging time. And if you remember, the first lockdown started on March 24, and the entire first -- financial year was affected by this. Initially, RBI has come out with various measures. They had announced moratorium also from March 1 to August 31. Then there was some Supreme Court case. [indiscernible] the decision was given by the Honorable Supreme Court. And intermittently, a lot of stress was [ foreseen ]. The RBI had also announced the relief measures for onetime restructuring of some of the accounts whoever wish to. And at the same time, another scheme had come from this guaranteed emergency line of credit. So there also some facilities have been extended by the bank. But all these factors, which the measures which have been announced by the Government of India, they have helped in reducing the stress in various accounts. But still, there was a lot of uncertainties. In the light of these uncertainties, what I can say is that the situation which we had assessed, although like we were never worried too much, but at the same time, we were quite cautious and we have taken all proactive measures as suggested by Government of India, as suggested by RBI and on our own by -- as suggested and guided by our Board members. So just based on that, we have taken various steps and with this -- the help of those steps have been able to -- I'm happy to say that the position here in our bank is under control. We have been able to control these slippages, [ have had ] good recoveries. And all the expectations, which are, in fact, better than the expected level, we had estimated the restructuring book of around 3% to 3.5%. But finally, what restructuring will be taking place is around 2%. Similarly, we had estimated that this slippage will be less than 2%. So we have been able to contain it within the 2%. So all these measures basically were kept under control. And as a result of that, I'm happy to announce that the bank has declared a net profit of INR 512 crore during the quarter, and -- which shows Y-o-Y growth of 278%. And the profit for the full year was INR 1,359 crore, and the bank has come in profit after a long gap of 5 years. So this is a very good position which has happened, and this impact has really turned it around. And second, the good improvement was that the RBI has taken our bank out of PCA as of March 10. And they have already said that the cost-to-income ratio should be [ kept ] below 50%, which we are quite hopeful that we will be able to keep below 50%. The other [ good news we had in this Q3 ], we had raised equity of INR 1,435 crore as we had also sold 23% stake in IDBI Federal Life Insurance. Now in this quarter, this -- if you have seen the results, of course, one extraordinary item which has -- which you will see is that the income tax refund we have received and which the interest is INR 1,300 crores. This is the orders pertaining to almost [ more than ] 20 years [ now ], orders pertaining to the years basically -- yes, '98-'99, '99-2000 and 2000-2001. So these old orders were there, so that is why the interest amount was large. But this INR 1,300 crores income which we have got, that we have utilized for making COVID provisions and other [indiscernible] provisions. So that way, like the whatever operating profit which has come, has come from the normal operations. In addition to that, out of that normal operations profit, we have also made some accelerated provision of around INR 900 crores. So the profit which we are seeing have come from the normal operations. In addition, of course, like this was supported by various facts that we were able to make good recovery both in return of accounts and in normal. So total recovery in return of accounts and other all accounts, including interest recovery, was INR [ 6,025 ] crore during the year and despite this COVID situation, of course. And there have been -- we had good upgradation also around of INR 782 crore. And as you are aware that our provision coverage ratio is almost [ 97% ]. So there is -- provision reversal is always there. So that is why this [indiscernible] profit is there. So as far as the net NPAs, as I said, slippage, we have been able to control below 2%. Net NPA was 1.97%. It is against the 2.75% net NPA -- pro forma net NPA as of 31 December. Actual net NPA was 1.94%, but that time, Supreme Court order was pending. So that is why we could not declare some of the [ accounts here ] last year. But we had made provisions that pro forma [ Tier 1 ] net NPA was 2.75%. And again, that's -- now it is 1.97%, and our provision coverage ratio continues to be 95.90%, which is the highest in the industry. Then capital adequacy wise, also we are quite comfortable as our Tier 1 capital and even, in fact, the entire Tier 1 capital in the form of CET1, that was 13.06%. And the total capital adequacy is 15.59%, which is quite sufficient to [ take care of the ] current year growth up to 13% to 14%. So -- and that when 13% to 14% growth [indiscernible] after keeping a cushion of 1.5% to 2% in the capital. So this is basically [indiscernible]. But since you have already gone through the presentation, so we will take the question and answer. But before that, I would like to [ set a big tone ] for the future year. So what we have estimated is that now since we are out of PCA, again, we were not able to grow in corporate advances. However, we will also start growing in corporate advances but in a very calibrated manner, in a very calculated manner. And the growth which we are expecting in corporate is around 8% to 10%; and retail, 10% to 12%. And we -- our guidance is [indiscernible] the CASA ratio, although [indiscernible] CASA ratio is [ 51 ], we have already crossed 50%. But sometimes, some government deposits or some extra deposits [ cut, our ] target will be to keep the CASA below 50, but it will never come down below 48%. Similarly, retail to corporate, [ same ]. But as I had earlier indicated, we will -- although the project ratio is -- retail is 62, but more or less, it will continue at the same level, but the policy is that it will not go below 55%. NIM, we are expecting that we would be able to maintain about 3%. And the [indiscernible] cost-to-income ratio below 50%, we are quite committed to that. And the -- this slippage ratio, we are expecting to be less than 2%, and credit cost less than 1.5%. So that way, the guidance is quite clear. And whatever guidance we have given in the past during the last 3 years, I'm quite happy to tell you that we have been able to rather surpass those estimates and show a better performance. And this time also, I feel that despite the challenging times of this COVID 2 situations, we will be able to adhere to the guideline because in retail, basically, my portfolio is -- more or less is quite safe portfolio. And the SMA level as of now is around 5%. So my efficiency ratio is 95%, which is more or less almost equal to the pre-COVID level. So that way, the SMA 2 is only 1.29%. So that is why we do not expect much slippages, but still we are not complacent. We are quite cautious, and we have taken various steps. We have created our monitoring and recovery vertical separately. Our recovery vertical and that NPA management group is already quite robust. So that way, we are quite cautious, and we will ensure that this situation continues to be under control. So with this, now I will hand over the -- back to you, Mr. Bhavik. I think we can take the question-and-answer because it will be better to take the specific questions and answer and -- so that we can explain the position in a more specific way. Thank you very much.

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

Yes, congrats on a good set of numbers, sir. My first question is, as you rightly said that now you are out of the PCA, now you will be focusing on the corporate growth as well. So if you can share your thought process, which are the -- where you should -- under the corporate, which industries or where -- which sectors you will like to grow as well? And secondly, what changes or what difference we are doing now so that in a historical manner -- historically, we have gone bad in terms of corporate gross NPA. Now what different strategy or what difference we are trying to do so that after this growth in the corporate growth, again, we should not be impacted or badly impacted through this gross NPA picture? That is my first question, sir.

Yes. Thank you. In fact, in the previous analyst meet, also we had mentioned, in these last 2 years, we have completely revamped our risk policies, our underwriting standards as well. And we have a very sectoral approach to risk, meaning certain sectors have been put in highly cautious, cautious, normal, so on and so forth. And this is not a cast in stone list. It is a dynamic list where the risk management department, independent of business, reviews and adds, deletes sectors from this list every quarter. For instance, as of now, we have the infrastructure and EPC sectors, which are highly cautious. When we put a sector in highly cautious, the underwriting thresholds become much higher, meaning we will not be able to onboard a client who is less than AA, for instance. Going forward, our thrust will be to add granular exposures in the mid-corporate segment, mainly in manufacturing. I think that should throw some color on where we would like to grow going forward.

Okay. Okay. Okay, sir. And secondly, on the retail portfolio, completely, we are focusing in Q4, we have seen strongly on the home loan portfolio. So how do you see -- in FY '22, along with the home loan portfolio, which other sectors or which other segments you would like to grow 10% to 12% as you have said in the previous?

So presently, the composition is centered towards the housing loan, that's true, plus the mortgage backed. These are done because of litigated efforts which we have made over the past. Now we have identified certain 2, 3 growth areas. One is clearly visible in the last year performance is the [ gold ] loan where we are...

Sir, meanwhile, I have a question. So we have a very large technically written off book of around INR 290 billion, INR 20,000 crores approx. So what recovery run rate do we envisage from that book?

2020, '21, we have taken a target of total recovery of around INR 4,000, so almost INR 1,000 crores per quarter. So one minute, I will just give you the breakup. So it is -- so what we are expecting is around INR 2,400 recovery in the normal GNPA, around INR 1,600 in the technical written off. So this is the recovery target which we are taking. So roughly around INR 4,000 crores next year. Of course, it will depend once we are able to -- if the COVID situation improves, it will improve further. But this minimum INR 4,000 crores we have in recovery, we are expecting during 2021, '22.

The next question is from the line of [ Anand Vi ] from Vital Capital Management.

Sir, I just wish to understand, assuming our plans work out, how do you see our ROA trajectory? And when do you think we'll be able to have an ROA higher than the cost of capital?

This year, if you see, our ROA is at 0.46%, right? And as we have indicated, if you see the [indiscernible] that we said that we haven't had a ROA of 1% by the financial year '24. So how we are planning to reach around, you are seeing our NIM improvement [indiscernible]. So what was impairing our NIM growth was [ further ] because we were not able to rank to the corporate sector. We were only lending in the retail segment. Also, a lot of our funds were brought in the [indiscernible] front, which have started coming to almost 7,000 [ before that come back ]. We had such that [indiscernible] funds because of the limited opportunity to deploy funds. So all these things, once we are -- we will be able to lend -- as mentioned in the beginning that mid-corporates and MSME sector is something we are looking at, mostly in the manufacturing sector. So this will give us a good return because -- generally, in the range of 9% to 10%. And given our cost of funds now coming down below 4%, this should give us a good stretch, and therefore, NIM can improve further, and we are looking at -- and secondly, second contributor to NIM will be a lower credit cost, which we are projecting at around 1.5% going forward. So all this, I think the combination of these factors are going to give us a decent profitability as we go forward. And therefore, ROA of 70 basis points is what we are projecting by next year and thereafter [indiscernible]. So we are looking at a 2- to 3-year horizon when we should be able to have our ROA higher than this cost of the capital.

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

Congratulations on a good set of numbers. So sir, my first question is on the slippages. So you have roughly INR 2,600 crores of slippages for FY '21. If you can give a breakup into retail and wholesale. And within wholesale, I mean, what are the key sectors from where these slippages have come up? If you can give those -- I mean color, it will be great. So that is my first question.

So I don't have a breakup of that. I don't have a breakup of wholesale entities. 48-52.

So 48% is retail?

Yes. 48% is from the wholesale segment and 51.7% is from the retail segment. So almost equal, almost equal. INR 1,200 crore is retail and INR 1,200 crore in...

Okay. Okay. And sir, on the restructuring side, so you have roughly INR 2,200 crores of restructuring out of which the corporate restructuring is INR 1,500 crores. And it seems that as per the BSE disclosure, it is from one account. So I mean is it from one of the construction conglomerate that this restructuring have come up?

Basically, the corporate borrowers but handling in retail. That has also been completed. So likely, we have targeted total restructuring of INR 2,500 crores, which I indicated in my opening remarks, it will be around 2% of my stated asset book. So by 30th of June, we will be able to complete it. Retail, in fact, already has been completed. And corporate, there -- 3 big accounts means they're not that big, but 3 accounts have already been done. And the remaining 2, 3 accounts will be calculated by 30th June. So all will be completed and -- for which we have made adequate provision also in advance. So whatever, 10% -- so no additional provision will be envisaged for that purpose.

Okay. So you are saying that -- I mean, I am referring the BSE disclosure point number 11, where you have disclosed that one corporate account, which amounts to INR 1,500 crores, has been restructured. So there are additional 2 accounts in pipeline as well what you are saying?

March 31, one was already completed. The other accounts, what MD mentioned, have been done in April. So March, only one was completed.

Okay. Okay. Understood. And my third question is, sir, on the SMA slide, the SMA 1 and 2 book that you have given, so is it the [indiscernible] reporting? Or is it on the overall portfolio?

It is on what? Sorry. Can you repeat?

So the question is, sir, the SMA book disclosure that you have mentioned on the Slide #27, is it the [indiscernible] reporting? Or is it for the overall book? So [indiscernible] reporting, I mean, whether it is above INR 50 million accounts only? Or it is...

No, no, it's a portfolio.

Total portfolio.

Overall portfolio.

Okay. Okay, sir. Understood. And sir, if you can just give me the details about the ECLGS 1 and 2. I mean, what has been the disbursement?

But just to clarify to your earlier question, you see this INR 6,385 crores which SMA book we have shown, it includes INR 5,200 -- INR 5,000 crores in retail book also. That is quite evident that it is the entire book because the retail is basically very small accounts only.

On the GECL both 1 and 2, we have canceled INR 2,190 crore, which is 97% of the additional amount, and we have disbursed INR 1,967 crores, which is 90% of the additional amount. Now GECL 1 is INR 1,735 crores. GECL 2 is INR 455 crores. These are the tranches. And disbursement GECL 1 is INR 1,622 crores and GECL 2 is INR 345 crores.

Okay. Understood. And sir, my last question is on the write-off policy. So I mean since now -- I mean we have a pretty good coverage on the existing GNPA book. But still the GNPA number is pretty high. So since you have already provided 93%, 94 percentage, so what is your write-off policy? When can we see this GNPA book coming down? If you can just give me some color on that.

As for the write-off policy, what we have is basically that whatever this 100% provided, we can write it off. Also, we have [ international ] accounts should not be classified as abroad and there are some 2 or 3 more points to. So based on a broad-based policy, which we have, a Board-approved policy, we do, in a quarter-to-quarter basis, work on the write-off action plan. Again, write-off technically helps us in reducing GNPA and it is also our [ cash ] planning tool. So combination of both factors we work out. This year also, we have done some amount of write-offs. But then taking a call on the full write-off of about INR 33,000 crores for this line, this is something we will look into it, but our paramount importance was that one of that criteria of coming out of PCA was the reduction in net NPA, which I think the bank has the focus on and we have got it to a level of 1.97%. GNPA is more optical. I think, as an analyst, you will appreciate the net NPA [indiscernible] is what both [indiscernible] and analysts will look at. But yes, having said -- made this point, we will look into the GNPA reduction on an optical level as also from a tax planning point of view. And having said that, once our advances start [indiscernible], that GNPA numbers will also come down. So we will take a [indiscernible] position on this in the coming year. And so now I would like to add here to explain the technical part. But now as you are aware, the government has already made announcement for setting up of [ NARC ] and that some of the assets are now -- of course, the policies are being made. And maybe, hopefully, within the next 3, 4 months that [ NARC ] may start with business. So these some accounts will be identified and will be transferred -- can be transferred. We will consider transferring some of the accounts to [ NARC ]. So that will also help us in reducing the GNPA number. So since our provision coverage ratio is quite high, around 97%, so that -- we will be in a position to transfer those. But there, of course, it will take some 2 to 3 months' time. And it will depend how the policies are made. But that is another one tool which will help us in reducing our GNPA.

Okay. Okay. Got it, sir. And one last question, if you can squeeze in. So the [indiscernible] recovery, has it been already reflecting on the 4Q number? Or I mean, it will come up in the next quarter?

We have taken it into -- [indiscernible] is something has been taken into in the fourth quarter.

[Operator Instructions] The next question is from the line of Abhinav Choudhary from Axis Bank Limited.

While my question was partially answered, I wanted more -- if you can throw more color on the SMA book, which is around 5%. So while we are seeing the majority of that in relation to retail, if you can provide some more color, whether it is on the unsecured portion, what percentage that will come out to be? And second is if you can give the figures on the LCR part, what is the LCR percentage that you are maintaining right now?

LCR. LCR he said. On the first question, the mortgage and the unsecured, see, we have a largely secured book on the structured retail, let's say. 93% of the book is housing loan or the mortgage book. So those are all secured. On the personal front -- personal loan front and the education loan, the book is very miniscule. So that is one area where which I said, we will grow in the coming months. On the SMA also, most of these are the traders accounts, which are collateral backed or CGTMSE-backed guarantees are there. So that way, unsecured portion of the book is not large. So -- okay. As far as LCR is concerned, we are -- the bank is adequate -- has adequate liquidity. It is -- more than 150%, we are maintaining the liquidity. So liquidity-wise, we are quite comfortable.

The next question is from the line of [ Sneha ] from Subhkam Ventures.

Sir, I joined late, so might be repetitive. First question is what is the collection efficiency as of now across all these segments?

Okay. The collection efficiency, I had indicated, that might -- SMA level, overall, the entire book is 5.08%. So that means 95% is my collection efficiency, and it is actually same as this pre-COVID level. So we are not experiencing much difficulty. And the reason also we had explained that as far as the retail book is concerned, our -- 90% of the loan book is in mortgage book and that too, also that, mainly is in [indiscernible] class. So we are able to recover our installments. And in MSME, as Mr. Khatanhar was explaining, we are -- 8% of the book is against -- either against the MSME or against the collateral security, and it is benefiting all traders out there. So it is, let's say, a secured book only. And in structured retail, I said, we do not have much assets in personal loans. It is mainly in home loan or mortgage book. Personal loan and education loan portion is quite small. So as far as corporate book is concerned, they are also now the accounts which are left with this quite -- 1 or 2 accounts. We may -- having said, that is why the corporate SMA book is around INR 1,339 crores. But still, that book is quite reasonably good. So that way, the SMA 2 number is only 1.29%. So the collection efficiency, just to sum up, that we have around 95%.

Okay. Sir, second question would be what is the outlook over the next year on the business front? Third question is how are we seeing overall asset quality to [ pan ] now considering the second wave to be -- second wave going on? And any additional provision which we require to make for the second wave?

So like you know, of course, the second wave -- again, first wave also had uncertainties attached to it, and we had made adequate provisions that RBI had, in fact, that time indicated that how much provision we should [indiscernible]. But I'm happy to tell that despite all those uncertainties, our -- the slippage book is not very large, we have been able to curtail our slippage. It is less than 2%, which was our estimate also. So same way now -- and the reason I have already indicated, because in retail, our book is [indiscernible] class. In corporate, also it is reasonably good. We do not foresee much problems going ahead. But still, we are cautious and we are monitoring our accounts quite closely so that we do not see any surprises. Now having said that, this -- although the RBI has not indicated to make any additional provision for COVID 2, but on our own, the INR 363 crore provision which we had made earlier, so as per RBI instructions, we could have reversed that as of 31 March, but we have decided to continue to do that. And the slippages, which happened in March, has been provided from the current year's profit. So that is why that same INR 363 crores we have continued. In addition, we have made INR 500 crore provision for COVID 2. So this will be available to us up to 31 March 2022. By that time, if any surprise come, it will be sufficient. In addition, for restructuring book, already, we have made a provision of INR 251 crores. And the remaining restructuring, INR 175 crores, that also we have provided in 31 March. So no additional [indiscernible]. One more that even interest refunded that -- which as per Supreme Court direction, that also we have made sufficient provision. So that means that the bank is adequately provided for all those accidents -- continuously has been provided for. So that is why we do not foresee any deterioration in the asset quality going forward. But yes, we are still cautious and monitoring the accounts [ factor ].

Any plans to sell off any of the subsidiaries?

Only that -- as of now, there's only mutual fund because in any case, that was the regulatory requirement as per the SEBI. Last year, we had finalized the deal, but somehow some regulatory approval could not be received. So we have started the process that IDBI Mutual Fund that we have planned to sell, we will try to complete this [indiscernible]. Other than that, our -- all my subsidiaries are making profit, and the performance has improved during this current year, and we will continue to.

And the last question is what is the restructuring status of the future group?