Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 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 Bank: Will retail thrust succeed? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • May 22, 2001

    IDBI Bank: Will retail thrust succeed?

    IDBI Bank's FY01 profits dropped by 68% on the back of a huge 7 time jump in provisions for non-performing assets. The bank's net NPA ratio as a percentage of net customer assets rose to 3.1% (1.3% in FY00). Its operating margins in FY01 too slipped by about 270 basis points due to the high cost of funds.

    (Rs m) FY00 FY01 Change 4QFY00 4QFY01 Change
    Interest Income 4,238 5,391 27.2% 1,363 1,464 7.4%
    Other Income 551 696 26.3% 173 190 9.8%
    Interest Expenditure 3,326 4,375 31.5% 974 1,102 13.1%
    Operating Profit (EBDIT) 912 1,016 11.4% 389 362 -6.9%
    Operating Profit Margin (%) 21.5% 18.8%   28.5% 24.7%  
    Other Expenditure 627 1,026 63.6% 196 333 69.7%
    Profit before Tax 836 686 -17.9% 366 219 -40.1%
    Provisions & Contingencies 53 450 743.5% 47 108 132.2%
    Tax 173 43 -75.2% 48 10 -80.1%
    Profit after Tax/(Loss) 610 194 -68.2% 271 102 -62.5%
    Net profit margin (%) 14.4% 3.6%   19.9% 6.9%  
    No. of Shares (eoy) 140 140   140 140  
    Diluted Earnings per share* 4.4 1.4   7.7 2.9  
    P/E (at current price)   14.4     6.9  

    IDBI Bank's cost of funds are comparatively high (9.5%) due to more proportion of corporate liabilities (77% of the total). On the asset side too, 95% of its total assets (loans) are in favour of corporates. The bank however, expects to bring down the cost of funds by around 75 to 100 basis points by FY03 through its aggressive retail initiatives.

    The bank has drawn up a detailed road map for its retail focus. It plans to increase the proportion of retail assets to 25% of total assets base (5% in FY01) and retail liabilities to 50% of total deposit base (34% in FY01) by FY03. To achieve this target, it is focusing on rural and semi-urban areas by opening up more centres. Apart from its retail loan products, IDBI Bank also plans to foray into insurance, internet banking, retail broking and credit/debit card businesses in the next three years. Its distribution network include 50 branches and 77 ATMs (plans to increase to 200 by FY02) across 35 cities. The bank expects, its current customer base of 0.3 m to double by FY02 driven by its retail strategies.

    Although, IDBI Bank seem to be moving on the right track, its operating cost are unlikely to come down in the near future considering the fact that its new initiatives requires a lot of marketing efforts. Also, it will be a challenge for the bank to move swiftly considering the increasing competition from other private sector and foreign banks.

    The bank's capital adequacy ratio of 11.7% is well above the statutory requirement of 9%. However, it may not support the fast growth plans of the bank. It is very likely that the bank will have to raise the further capital in the next six months (at the current high cost of funds).

    During the year, the bank has spent Rs 350 m on technology improvement and plans to spend Rs 550 m further in the current fiscal. It has chosen 'Finacle', the e-banking platform from Infosys to drive its business growth. The contribution of tech spend in other expenses increased to 21% from 8% in the previous year. The bank's other expenses as a result jumped by 64% to Rs 1 bn. Nevertheless, the bank plans to bring down its cost to income ratio (which stood at 59% in FY01) to 50% by FY02. This will be achieved through cost control measures. Considering the retail promotional expenses incurred by the bank currently to acquire customers by creating brand identity and investments in human resources & technology, it will be a tough task for the bank to reduce its operating expenses in the near term.

    At the current market price of Rs 20 IDBI Bank is trading at a P/E of 18 times and Price/Book value ratio of 1x. The reason for bank's lower valuations are its comparatively high NPA ratio.



    Equitymaster requests your view! Post a comment on "IDBI Bank: Will retail thrust succeed?". Click here!


    More Views on News

    IDFC Bank: Strong Trading Income Shields Credit Slowdown (Quarterly Results Update - Detailed)

    Aug 10, 2017

    IDFC Bank is taking steps to address contracting NIMs and successfully transition in to a retail bank.

    ICICI Bank: Loan Slippages Trending Downwards (Quarterly Results Update - Detailed)

    Aug 10, 2017

    Asset quality will be the key thing to watch out for going forward.

    Axis Bank: Outside Watchlist Slippages a Big Worry (Quarterly Results Update - Detailed)

    Jul 31, 2017

    Almost 74% of the watchlist as provided by the bank of Rs 226 billion in FY16 has turned into non-performing assets.

    HDFC Bank: Asset Quality Deteriorates due to Farm Loan Waiver (Quarterly Results Update - Detailed)

    Jul 25, 2017

    Asset quality was under pressure on account of farm loan waivers. Despite the higher provisioning, the company reported a healthy profit growth of 20%.

    SBI: Merger Pushes up Bad Loans (Quarterly Results Update - Detailed)

    May 23, 2017

    State Bank of India (SBI) ended FY17 on a healthy note but concerns on bad loans from associate banks remain.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms