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IDFC Bank: Strong Trading Income Shields Credit Slowdown - Views on News from Equitymaster
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  • Aug 10, 2017 - IDFC Bank: Strong Trading Income Shields Credit Slowdown

IDFC Bank: Strong Trading Income Shields Credit Slowdown
Aug 10, 2017

IDFC Bank declared its results for the first quarter of the financial year 2017-18 (1QFY18). The bank posted a 9% YoY growth in interest income and 65% growth in profit during the quarter. Here's our analysis of the results.

Performance summary
  • Interest Income grew by 8.6% YoY in 1QFY18 on an 1% YoY growth in net advances and a 241% jump in net credit investments.
  • But with interest expense growing twice as fast, net interest income declined by 22% YoY during the quarter. NIMs (net interest margin) contracted by 0.7% to 1.7% in 1QFY18
  • The redeeming factor has been a 205% jump in other income backed by 274% surge in trading gains and 99% rise in fee income.
  • Operating expenses grew by over 40% in 1QFY18 due to a steep 56% rise in other expenses even as employee costs were up by 24% YoY. The cost-to-income ratio marginally improved to 38% during the quarter thanks to buffer of large other income.
  • Due to failed restructuring in the legacy infra book, the gross bad loans ratio increased to 4.1% in 1QFY18 as compared to 3% in the preceding quarter. But as the legacy stressed asset book has been adequately provided for, there has been no impact on the credit costs during the quarter. The bank has written back provisions of Rs 146 million in 1QFy18.
  • Backed by a steep rise in other income coupled, net profit shot up by 65% YoY during the quarter.
  • Capital adequacy ratio stood at 18.6% of which Tier I capital adequacy ratio stood at 18.3% at the end of 1QFY18.

    Financial Snapshot
    Rs (m) 1QFY17 1QFY18 Change
    Interest income 19,755 21,451 8.6%
    Interest expense 14,766 17,571 19.0%
    Net Interest Income 4,989 3,880 -22.2%
    Net interest margin (%) 2.40% 1.70%  
    Other Income 2,126 6,488 205.2%
    Other Expense 2,766 3,894 40.8%
    Provisions and contingencies 236 -146  
    Profit before tax 4,113 6,621 61.0%
    Tax 1,465 2,245 53.2%
    Profit after tax/ (loss) 2,648 4,376 65.3%
    Net profit margin (%) 13.4% 20.4%  
    No. of shares (m)     3,401
    Book value per share (Rs)*     44.5
    P/BV (x)     1.24
    * (Book value as on 30th Jun 2017)
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