Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
IDBI: Investments save the day - Views on News from Equitymaster
  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

IDBI: Investments save the day
Apr 26, 2008

Performance summary
  • Interest income grows by 26.4% YoY in FY08 on the back of 32% YoY growth in advances.

  • Net interest margins languish below 1%.

  • Profits on sale of investments keep net margins positive despite higher interest costs and provisioning.

  • Capital adequacy ratio at 11.9%.

  • Net NPA to advances drop from 1.6% in FY07 to 1.3%

  • Cost to income improves from 46% in FY07 to 42% in FY08.

  • Declares dividend of Rs 2 per share (dividend yield 1.9%).

Standalone numbers
Rs (m) 4QFY07 4QFY08 Change FY07 FY08 Change
Interest income 18,144 22,497 24% 63,454 80,208 26%
Interest expense 16,017 20,138 26% 56,874 73,644 29%
Net Interest Income 2,127 2,359 11% 6,580 6,564 0%
Net interest margin (%)       0.5% 0.6%  
Other Income 3,709 3,784 2% 10,272 16,354 59%
Other Expense 2,052 3,094 51% 7,784 9,588 23%
Provisions and contingencies 1,615 277 -83% 2,240 5,103 128%
Profit before tax 2,169 2,772 28% 6,828 8,227 20%
Tax 32 323 908% 523 933 78%
Effective tax rate 1.5% 11.6%   7.7% 11.3%  
Profit after tax/ (loss) 2,137 2,450 15% 6,305 7,295 16%
Net profit margin (%) 11.8% 10.9%   9.9% 9.1%  
No. of shares (m)       724.4 724.8  
Book value per share (Rs)*         93.4  
P/BV (x)         1.1  
* (Book value as on 31st March 2008)

What has driven performance in FY08?
  • Advance growth - Defying disadvantages: After several quarters of muted growth in FY07 and FY08, IDBI has managed to outperform the sector average by clocking 32% YoY growth in advances in FY08. In doing so, the bank has also out-performed our full year FY08 estimates. The bank has been particularly aggressive in growing its retail advance portfolio.

    While the deposit growth continues to be healthy (68% YoY), the fall in the proportion of CASA from 31% in FY07 to 21% in FY08 is very disappointing, suggesting that the bank is targeting growth at the cost of margins Despite having a large balance sheet size, due to the big ticket sizes of the loans disbursed earlier by the erstwhile DFI, IDBI does not have a very large deposit base (having started off on a zero deposit base as a banking entity) and the bank needs to raise borrowings at high costs to support its balance sheet. We have estimated the bank’s NIMs to remain below 1% until FY10. Further the bank also has the inherent disadvantage of bringing its level of SLR, from the current 15% to 25%, to match that of its banking peers by 1HFY10.

    Assets…pick up pace
    (Rs m) FY07 % of total FY08 % of total Change
    Advances 624,710   822,130   31.6%
    Retail 99,954 16.0% 129,074 15.7% 29.1%
    Corporate 524,756 84.0% 693,056 84.3% 32.1%
    Deposits 433,540   729,980   68.4%
    CASA 135,264 31.2% 153,296 21.0% 13.3%
    Tem deposits 298,276 68.8% 576,684 79.0% 93.3%
    Credit deposit ratio 144.1%   112.6%    

    Earlier in our research meeting with the bank it had disclosed that the total recovery of NPAs under the SASF until FY08 has been to the tune of Rs 2.5 bn of which Rs 1.5 bn has been recovered in cash. Of the remaining, cases worth Rs 5 bn have been resolved. However, it must be noted that unless the total amount is recovered in cash, the bank will be unable to economically deploy them and continue to lose interest on the same.

  • Fees leave lot to be desired: IDBI’s other income (of which Rs 2 bn can be attributed to profit from sale of 0.9 m equity shares of NSE, constituting 2% of the latter’s issued and paid up capital, in 1QFY08) has been the only enthusing factor in the full-year results. The bank’s fee income has also shown a good traction in the past few quarters. However, the same continues to constitute a negligible proportion of the it's total income. The life insurance venture with Federal Bank and Fortis Insurance International (in which IDBI has 48% stake) and proposed asset management company are expected to aid the momentum.

  • Low cost advantage: Due to IDBI’s lean structure and the erstwhile UWB’s relatively lower cost operations, the lowering of the blended cost to income ratio from 46% in FY07 to 42% in FY08 has aided IDBI’s operating margins. Given the fact that the branch franchise of UWB is largely present in the rural and semi urban areas, the same has not had an adverse impact on the bank’s cost ratio.

  • Imprudent provisioning: After successfully reducing its net NPAs that had gone up to 1.6% in 9mFY07 due to the loss assets of UWB (Rs 49 bn) taken into IDBI’s books, to 1.1% in FY07, the same have marginally increased to 1.3% in FY08. IDBI’s provision coverage, despite rising from 35% in FY05 to 50% in FY078, lies way below that of its peers. However, the higher provisioning booked this quarter seems to be a wake up call in this regard for the bank and augurs well for the sustenance of its asset quality in future.

    What to expect?
    At the current price of Rs 105, the stock is valued at 0.8 times our estimated FY10 adjusted book value. While the capital adequacy ratio of the bank at 11.9% in FY08 is inadequate to sustain the current growth rates, the bank had floated a US$ 1.5 bn Tier II borrowing programme in FY08 for funding its international banking business. It also plans to open two offshore banking units in Singapore and Bahrain. Having said that, the resilient nature of the bank’s efforts to accelerate non-fund income growth and improve margins, is a cause of concern.

To Read the Full Story, Subscribe or Sign In

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Feb 23, 2018 (Close)


  • Track your investment in IDBI BANK with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks