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IDBI: Making the right moves

Jun 1, 2002

Industrial Development Bank of India (IDBI) has recorded dismal performance for FY02. IDBI recorded a 39% drop in net profits during the year. Income from operations declined by 12%. Poor industrial growth and slowdown in credit offtake took a toll on IDBI's financial performance.

(Rs m) FY01 FY02 Change
Income from operations 86,640 78,040 -9.9%
Other Income 1,640 1,450 -11.6%
Interest expense 65,950 62,500 -5.2%
Net interest income 20,690 15,540 -24.9%
Other expenses 2760 2880 4.3%
Operating Profit 19,570 14,110 -27.9%
Operating Profit Margin (%) 22.6% 18.1%  
Depreciation 2300 2230 -3.0%
Provisions and Contingencies 9,930 7730 -22.2%
Profit before Tax 7,340 4,150 -43.5%
Tax (430) 90  
Profit after Tax/(Loss) 6,910 4,240 -38.6%
Net profit margin (%) 8.0% 5.4%  
No. of Shares 652.8 652.8  
Diluted Earnings per share* 10.6 6.5  
P/E Ratio   2.7  

Focus on improving the quality of assets, saw IDBI making cautious disbursals, consequently affecting income from operations. In FY02, IDBI sanctioned funds of Rs 160 bn as against Rs 287 bn last year. The FI disbursed Rs 112 bn funds during FY02 (down 36% since last year).

Operating profit of the financial institution declined sharply by 28%. Lower income from operations and increased other expenses has put pressure on operating profits. Operating margins fell by nearly 4% to 18%. In FY01, IDBI made a one time capital gain of Rs 3.6 bn on the sale of its 51% stake in SIDBI. Excluding this, the net profit in FY02 has actually increased by 28% YoY.

IDBI's tax liabilty for FY02 stood at Rs 100 m. However, due to a deferred tax credit of Rs 190 m, IDBI reported a net tax credit of Rs 90 m during FY02. IDBI set aside Rs 25 bn as an accelerated provision to write off NPA's. This was in addition to the stipulated provisioning of Rs 7.7 bn made in FY02. NPA's as a proportion of total loan assets have come down by 3% to 11.7%. IDBI plans to bring down its NPA levels to below 5% as stipulated by the RBI by FY03. Capital adequacy ratio for IDBI has also improved to 17.9% against the stipulated 9.0% (15.8% in FY01).

IDBI has focused attention on financing infrastructure projects during FY02. About 14% of all disbursals were made to this sector. Other thrust areas were telecom, power and non project finance to good corporates. Focus on risk management has been intensified with the setting up of Risk Management Committe (RMC) to identify good quality assets. An Asset Liability Committe has also been formed to review and manage market risks. IDBI also plans to foray in to universal banking in the coming year.

The stock is currently trading at Rs 18 a P/E multiple of 2.7x based on FY02 earnings. IDBI has initiated strong measures to clean up its balance sheet. The most prominent step in this direction was the accelerated provisioning for NPA's. Also, greater focus on investment in quality assets is likely to help IDBI going forward. In FY02 demand for industrial credit had been poor and going forward this is likely to be the key factor for the performance of a financial institution like IDBI. Any improvement in the economic climate will be a welcome relief for IDBI. IDBI seems to have taken the first steps in the right direction.

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