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IDBI Bank: NIM, asset quality bring cheer - Views on News from Equitymaster
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IDBI Bank: NIM, asset quality bring cheer
Nov 6, 2009

Performance summary
  • Interest income grows by 43% YoY in 1HFY10, on the back of 21% YoY growth in advances.
  • Capital adequacy ratio at 11.9% at the end of 1HFY10.
  • Net NPA to advances reduces from 1.3% in 1HFY09 to 1.2% in 1HFY10.
  • Cost to income ratio shrinks from 49% in 1HFY09 to 34% in 1HFY10.
  • Net profit margins drop by 0.5% in 1HFY10 due to higher provisioning costs.


Standalone numbers
Rs (m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Interest income 25,968 37,201 43.3% 50,130 71,834 43.3%
Interest expense 24,683 32,480 31.6% 47,939 63,949 33.4%
Net Interest Income 1,285 4,721 267.4% 2,191 7,885 259.9%
Net interest margin (%)       0.4% 1.0%  
Other Income 4,208 5,627 33.7% 7,607 13,183 73.3%
Other Expense 2,645 3,981 50.5% 4,764 7,140 49.9%
Provisions and contingencies 1,002 3,329 232.2% 1,371 8,932 551.5%
Profit before tax 1,846 3,038 64.6% 3,663 4,996 36.4%
Tax 220 500 127.3% 440 740 68.2%
Effective tax rate 11.9% 16.5%   12.0% 14.8%  
Profit after tax/ (loss) 1,626 2,538 56.1% 3,223 4,256 32.1%
Net profit margin (%) 6.3% 6.8%   6.4% 5.9%  
No. of shares (m)       724.7 724.8  
Book value per share (Rs)*         108.2  
P/BV (x)         1.1  
* (Book value as on 30th September 2009)

What has driven performance in 2QFY10?
  • IDBI Bank has managed to outperform the sector average by clocking nearly 21% YoY growth in advances in 1HFY10. Further, in doing so, the bank has paid heed to margins and asset quality, both of which have improved YoY, albeit marginally. IDBI has indeed been particularly aggressive in growing its retail advance portfolio, which has grown at a faster clip than that in most PSU banks, albeit on a lower base.

    The fall in the proportion of CASA (current and savings account) from 16% in 1HFY09 to 15% in 1HFY10 is also very disappointing, particularly since the CASA base of the bank is very small.

    High cost growth
    (Rs m) 1HFY09 % of total 1HFY10 % of total Change
    Advances 871,190   1,049,730   20.5%
    Retail 139,390 16.0% 164,808 15.7% 18.2%
    Corporate 731,800 84.0% 884,922 84.3% 20.9%
    Deposits 794,450   1,306,770   64.5%
    CASA 128,701 16.2% 193,141 14.8% 50.1%
    Tem deposits 665,749 83.8% 1,113,629 85.2% 67.3%
    Credit deposit ratio 109.7%   80.3%    

  • IDBI’s other income grew by 73% in 1HFY10 bringing the non- interest income to 16% of total income in 1HFY10 from 13% in 1HFY09. This can be attributed to the bank’s extended retail operations and the life insurance venture with Federal Bank and Fortis Insurance International (in which IDBI has 48% stake).

  • IDBI Bank’s NPAs have sequentially reduced in the past three to four quarters to 1.2% in 1HFY10. The bank’s provision coverage, has however, fallen from 50% in FY08 to 32% in 1HFY10 and lies way below that of its peers. Going forward this will entail substantially higher provisioning that will take away the bank’s cost advantage due to its lean structure.

What to expect?
At the current price of Rs 115, the stock is trading at 0.9 times our estimated FY11 adjusted book value. As the capital adequacy ratio of the bank at 11.9% in 1HFY10 is inadequate to sustain the current growth rates, we see the same being unsustainable going forward. Having said that, while we are enthused by the bank’s efforts to accelerate non-fund income growth, inability to improve margins is a cause of concern.

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