IDBI Bank PAT jumps 53% YoY on higher NII growth

IDBI Bank on Friday reported a 53% year-on-year (y-o-y) rise in its net profit to Rs 578 crore during the October-December quarter, mainly on the back of healthy net interest income (NII). On a sequential basis, the lender’s bottomline grew 2%.

For the quarter ended December, IDBI Bank’s NII or the difference between interest earned and expended, grew 31% on year to Rs 2,383 crore. The lender’s net interest margin (NIM) improved by 101 basis points (bps) on a yearly basis to 3.88% during the reporting quarter.

As on December-end, IDBI Bank’s gross advances stood at Rs 1.67 lakh crore, up 6.2% on quarter and 4.8% on year. Retail loans accounted for 63% of the lender’s loan portfolio while corporate loans formed the remaining 37%. Overseas advances had a 4% share in overall gross advances. Further, the lender’s yield on advances stood at 9.67% in the quarter ended December, lower 30 bps on a sequential basis but higher than 9.53% a year ago.

In a post earnings media call, IDBI Bank managing director and chief executive officer (MD & CEO) Rakesh Sharma said partially the cause for muted growth of advances is because borrower companies are shifting to the non-convertible debenture route to raise funds. “I had indicated that we will be targeting growth (credit growth) of 8-10%, so we do not face any problem of slippages or stress in the sector because looking at the situation of Covid-19, we have to be quite calibrated in our approach and we have to take the calculated risk that is why growth is less. But I fully agree that going forward, next year (FY23) we will have to show growth of more than 10%, then we will be able to show much better results and we are aware of that.”

On liabilities side, the bank’s total deposits stood at Rs 2.22 lakh crore as on December 31, down 0.8% YoY and 0.3% on a sequential basis. The reason for contraction in the bank’s deposit base is lower credit demand and the bank’s strategy to lower share of bulk deposits, Sharma said. Its low-cost current account and savings account (CASA) ratio improved to 54.69% as on December 31 from 48.97% a year ago. Further, the cost of deposits fell more to 3.61% as on December-end from 3.66% a quarter ago and 4.41% a year ago.

IDBI Bank’s asset quality improved in the reporting quarter with gross non-performing asset ratio (GNPA) falling to 20.56% as on December-end from 21.85% as on September-end and 23.52% a year ago. The bank’s net NPA ratio improved 24 bps on a yearly basis and stood at 1.70% as on December 31. Going ahead, Sharma said gross NPAs will likely fall further to below 17% by March-end, and below 12% by the end of the next financial year. Sharma said IDBI Bank has identified bad loans amounting to Rs 11,000 – 12,000 crore for sale to the National Asset Reconstruction Company (NARCL) and the bank’s GNPA ratio will come down by 4% once these accounts are transferred. Lastly, the bank’s capital adequacy ratio stood at 16.75% as on December-end, of which tier-I capital consisted of 14.13%.

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Bandhan Bank net rises 36% riding on growth of non-interest income

Bandhan Bank on Friday reported a 35.79% year-on-year jump in net profit to Rs 858.97 crore for the third quarter this fiscal year from Rs 632.59 crore in the same period last financial year as the lender’s non-interest income grew and provisions fell.

The private sector lender had posted a whopping net loss of Rs 3008.59 crore for the second quarter in the current financial year on the back of Rs 5613.48-crore provisions as it had seen a huge surge in bad loans.

Its non-performing assets (NPAs), in absolute terms, rose 7.74% quarter on quarter to `9441.57 crore in Q3FY22 as against Rs 8773.60 crore in Q2FY22. On a year-on-year basis, its NPAs soared tenfold from Rs 859.22 crore in the third quarter last fiscal. During the quarter under review, the bank’s gross NPAs, as a percentage of total loans, stood at 10.81% compared to 10.82% in the second quarter.

Commenting on the results, Chandra Shekhar Ghosh, managing director and CEO, said, “Third quarter of this fiscal has been a very good one for the bank where we have witnessed growth across all parameters. After the challenging first half, we have seen growth bounced back strongly and things stabilise on the asset quality front with collection efficiency improving very strongly.”

For the EEB segment (erstwhile microbanking segment), collection efficiency for December 2021 stood at 92% (including NPAs) against 86% in September 2021. And, it was 97% (excluding NPAs) for December versus 93% in September.

“We have seen all round recovery during the quarter with improved collection and increase in disbursement. Q4 historically has been the best quarter for the bank and we are positive of our business going forward. With group loan share in total advances reduced to 52%, bank is on track to achieve the diversification strategy which it had laid down for FY25,” Ghosh said.

Net interest income (NII) for the quarter stood at Rs 2124.70 crore as against Rs 2071.74 crore in the corresponding quarter of the previous year. The bank’s non-interest income grew 26.67% year on year to Rs 712.29 crore. Provisions during the quarter under review fell 25.25% YoY to Rs 805.71 crore from Rs 1077.83 crore in the year ago.

The bank said share of full paying customers stood at 89% in December, up from 79% in September. Around 66% of NPA customers continued to make payments in a bid to regularise their overdue loan accounts at the earliest. Around 2/3rd of the bank’s restructured customers also continued to pay despite moratorium.

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Interview| A Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC – ‘FPIs to find India relatively more attractive versus other EMs in 2022’

Inflows by Foreign Portfolio Investors (FPIs) in India are expected to be higher amid higher visibility of economic and earnings growth that India provides, compared to other emerging markets (EMs), says A Balasubramanian, managing director and chief executive officer, Aditya Birla Sun Life AMC, in an interview with Manish M Suvarna and Ruchit Purohit. Edited excerpts:

Do you see RBI increasing repo rate or reverse repo rate, or a change in stance in this calendar year after normalisation of liquidity in last two policies? What is bond market’s view on RBI’s stance?

RBI has been at the forefront in policy response to pandemic and they have done a remarkable job in supporting economy through the pandemic. We are witnessing that the worst impact of pandemic on economy is behind, and steady improvement in growth. Hence RBI has started the normalisation process and is absorbing excess liquidity via Variable Reverse Repo Rate auctions. Going ahead, we expect the process of monetary policy normalisation to continue in a calibrated manner without impacting the market sentiment. In our assessment, one could witness two repo rate hikes of 25bp each in this calendar year and normalisation of LAF corridor back to 25bps.

Your take on the overall earnings growth and also on valuations of the markets — compared to the other markets?

We believe the uptick in GDP growth around 6.50% to 7% to come back this year. This, in fact, will be driven by certain segments in the economy viz. consumption, investment and exports growing better than normal. As a result of this, we see significant turnaround in corporate profitability and, therefore, keeping the overall momentum in the market alive. Having said that, overall valuation is in fact at a premium of 15% to its long-term average. India is also trading at a premium to rest of the global market, however, China factor on one side and continuous reforms in India are driving the premium valuation.

What is the strategy of mutual funds for IPOs given that some have tanked badly, will Aditya Birla MF look at launching an IPO Fund?

The year 2021 was the best year for the Indian IPO market as it enabled many companies to raise capital. Many IPOs generated significant gains for investors, including mutual funds, in the form of listing gains. Most of the new-age businesses such as e-commerce oriented start-up companies, that have got long-term potential, managed to raise funds in a big way that India and the regulator can take pride in for enabling. The growing risk appetite from domestic investors is a good sign for building healthy long-term capital market. Listing gain or loss can be a function of various factors, hence, one must look at an overall basis on how companies are doing from the point of view of business objective and action. We, as a fund house, do not have any plans for launching an IPO fund at this stage.

Considering the expected three rate hikes by the Fed in CY22, inflation on cards, and the third wave across the globe — how do you see the inflows of FPIs in debt and equity market in India in the near term?

US policy tightening can lead to a reversal in flows to EM in 2022. And with the dollar expected to strengthen till mid-2022, FPI flows to EMs may remain under pressure. In contrast to most EMs, India has got strong FPI flows in equity over the past three years. Given the higher visibility to economic and earnings growth that India provides, FPIs are likely to find India to be relatively more attractive versus other EMs. Hence, while FPI flows in equity to EMs are expected to be muted in 2022, India is likely to do relatively better in the EM pack.

Inflation is no longer being called transitory by other central banks, what are your views on that? And how you see inflation and growth in near term given the third wave of pandemic?

We need to differentiate between inflation in advanced economies, particularly the US and to some extent Europe, from India. Inflation in advanced economies was a result of a very large stimulus creating excess demand, which was not satisfied by pandemic constrained global supply chains. The result has been multi-decade high inflation. While there are linkages via import channel and especially due to high commodity prices, but inflation in India, has largely stayed within the RBI’s inflation target zone. Omicron wave will likely affect both inflation and growth to some degree, but the impact is expected to be for a couple of months and much milder than what we saw in earlier waves given that restrictions have been far less, and economy is adapting to living with the virus.

In January, crude oil prices have risen sharply, which could put pressure on inflation. Considering this, how you see movement of yield on government securities in near term or before monetary policy and budget? Yes, rising crude price can put pressure on inflation but the actual impact will depend on the final pass through of prices and the sustainability of the increase. Government had recently cut taxes on fuel prices, which had provided some cushion to the recent rise in prices. Yields on benchmark 10-year government securities have already increased by about 15bps since the beginning of the year in response to higher crude prices and US yields and also because of lower RBI support to government borrowing. While there are some upside risks to government bond yields, particularly from the upcoming FOMC meeting, we draw comfort from RBI’s commitment to see that bond yields do not go far away from the macro-fundamentals and, hence, we do not expect a sharp rise from current levels in the near term.

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Bankers await RBI nod on revised bad bank structure

Banks are waiting to hear from the Reserve Bank of India (RBI) on the revised structure for the bad bank proposed by the Indian Banks’ Association (IBA). According to three bankers in the know, the industry has offered to structure a principal-agent relationship between the National Asset Reconstruction Company (NARCL) and the India Debt Resolution Company (IDRCL) and the central bank’s nod is expected any day now.

The reason for planning a new structure is the RBI’s objection to approving the dual-entity structure of the bad bank. The original plan put forward by the government involved the setting up of an ARC, which would aggregate non-performing assets (NPAs) worth Rs 500 crore or more and an asset management company (AMC), which would work to resolve the bad assets for a fee. 

While the RBI issued a licence to the ARC — NARCL in this case — it expressed its reservations about the plan to transfer assets to the AMC, a banker said. ARCs are a category of non-banking financial companies (NBFCs) regulated by the RBI, but AMCs are regulated by the Securities and Exchange Board of India (Sebi).

A principal-agent relationship is an arrangement under which an entity legally appoints another entity to act on its behalf. If such a structure is implemented with the NARCL as the principal and the IDRCL as an agent, it will give the RBI control over the latter.

“What has been proposed now is a principal-agent relationship where the asset resolution will be outsourced to the IDRCL. So far we haven’t heard from the RBI,” a senior executive with a mid-sized private bank said.

Another banker said a solution on the matter could be reached by the end of this month. “We are working on this project on a regular basis and every day there is some development. We are hoping that by month-end there will be a final resolution of the matter,” he said.

The original plan of a bad bank, comprising an ARC and an AMC, was announced as part of the Union Budget for FY22 on February 1, 2021.

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Banks seek ECLGS extension, payments companies want zero-MDR gone

Banking industry lobby Indian Banks’ Association (IBA) has requested the government to extend the Emergency Credit Line Guarantee Scheme (ECLGS) by another year to March 31, 2023. The Covid-era credit guarantee scheme is targeted at smoothening financing for small enterprises and an extension will support micro, small and medium enterprises (MSMEs), who still need help, bankers said.

According to the latest notification issued by the National Credit Guarantee Trustee Company (NCGTC) on October 4, 2021, the ECLGS will be in force till March 31, 2022, or till guarantees for loans worth Rs 4.5 lakh crore have been issued. In its first iteration, issued in May 2020, the scheme offered a 100% government guarantee for 20% additional funding to eligible MSMEs. In 2021, the outlay under the scheme was enhanced to Rs 4.5 lakh crore, with an incremental support of 10% being guaranteed over and above the initial 20% support amount.

“The measures banks have requested are mostly pertaining to support for MSMEs, who are yet to fully recover from the blows of the pandemic. We are specifically asking for an extension for the ECLGS,” a senior banker said. A recent report by the State Bank of India’s (SBI’s) economic research division said of the extended limit of Rs 4.5 lakh crore, 64.4%, or Rs 2.9 lakh crore, had been sanctioned by November 21, 2021.

In a separate representation to the government, payments industry body Payments Council of India (PCI) has requested a rollback of the zero-MDR (merchant discount rate) regime for Unified Payments Interface (UPI) and RuPay debit cards or to incentivise the industry with a Rs 4,000-crore allocation to compensate for the revenue lost thereof. The zero-MDR regime, under which merchants have to pay no fee to payment infrastructure providers for UPI and RuPay debit card transactions, has been in place since December 2019.

Vishwas Patel, chairman, PCI, and director, Infibeam Avenues, said, “We request the government to consider a rollback of zero-MDR, with a view to broaden and significantly grow the merchant acceptance base particularly in the MSME space and also to facilitate the deployment of payments infrastructure by non-bank players, who have been the biggest deployers of capital in this area for the past few years.”

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