IDBI Bank: Other income fuels growth - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


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

IDBI Bank: Other income fuels growth

Jul 25, 2001

IDBI Bank reported an outstanding performance for the quarter ended June '01. The bank's profits jumped by 53% despite a 5% drop in interest income. A rise of over 450 basis points in operating margins and 84% increase in other income, pushed the profit growth of the bank.

(Rs m) 1QFY01 1QFY02 Change
Interest Income 1,252 1,195 -4.6%
Other Income 244 449 83.7%
Interest Expenditure 1,009 908 -10.0%
Operating Profit (EBDIT) 244 287 17.8%
Operating Profit Margin (%) 19.5% 24.0%
Other Expenditure 194 272 40.1%
Profit before Tax 294 463 57.8%
Provisions & contingencies 136 160 17.9%
Tax 39 121 211.3%
Profit after Tax/(Loss) 119 182 53.1%
Net profit margin (%) 9.5% 15.3%
No. of Shares (eoy) 140.0 140.0
Diluted Earnings per share* 3.4 5.2
P/E (at current price) 4

During the quarter, the bank's cost of deposits declined by 59 basis points to 8.6%. Low cost deposits witnessed a rise of 61% to Rs 8.7 bn and now contributes 25% to total deposits. The bank's retail initiatives enabled it to increase the proportion of retail deposits to 38% of total deposits (34% in FY01).

IDBI Bank's profit growth was largely driven by other income growth. As the bank has large exposure to corporate clients (95% of total assets as on FY01), a slowdown in the economic activity was reflected in its dismal interest income growth. Other income of IDBI Bank, which relates to income from non-fund based banking activities such as fees and commission, forex and money-market trading income jumped by 84% and now forms 27% of total income (from 16% in 1QFY01). Change in other income growth due to competitive factors could lead to a volatility in earnings going forward.

The bank has made a significant progress in the first quarter in migrating to new technology platforms. It has implemented a core-banking system 'Finacle' from Infosys in record time. This helped the bank in bringing down the cost to income ratio to 37% from 40% in 1QFY01.

Although, the bank's exposure to sensitive sectors comprising real estate, capital markets and commodities is a marginal 2.2%, it has increased the provisioning amount in the current quarter by 18%. Its net NPA ratio as a percentage of net customer assets stood at 3.1% as on March '01.

At the current market price of Rs 19, IDBI Bank is trading at a P/E multiple of 4x and Price/Book value ratio of 1x, 1QFY02 annualised earnings. The reasons for its low valuations are high cost of funds, higher exposure to corporate clients, parentage of IDBI (which is facing tough times) and interest income facing competitive pressures.

Equitymaster requests your view! Post a comment on "IDBI Bank: Other income fuels growth". Click here!


More Views on News

How the YES Bank Collapse Unfolded - 10 Points (Sector Info)

Mar 9, 2020

A timeline of how YES Bank went from a stock market darling to a pariah.

Today's Stock Market Crash: 10 Points (Sector Info)

Mar 6, 2020

Top factors that dragged the markets lower today.

More Views on News

Most Popular

My Recent Recommendation Will Profit from the Global Supply Chain Crisis (Profit Hunter)

Mar 31, 2021

A tiny chemical company, started in the Licence Raj era, is a great example of a new wealth creating opportunity.

My Stock Trading Strategy (Fast Profits Daily)

Mar 31, 2021

In this video I'll show you exactly how I go about picking stocks for trading.

4 Stocks to Make Your Portfolio Immune to the Second Covid Wave (Profit Hunter)

Apr 6, 2021

Rather than predicting the market, successful investing is more about preparing well and placing your bets accordingly.

If the Market Falls, I Will Do This... (Fast Profits Daily)

Apr 1, 2021

What should you do if the market falls? In this video, I'll tell you what I will do.

India: Recovery Stalled by Vaccine Games? (The Honest Truth)

Apr 13, 2021

Ajit Dayal on how India's vaccine strategy will impact the markets.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms