IDFC First Bank Limited

The interest on current account is the facility of sweep in which is provided by Kotak Bank from many years.
I think this will be a superb facility as many business owners and NBFCs would shift to IDFC First bank as their rates are more than Kotak and service levels and technology too.

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Results are out:

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605 crore net profit.
450 crore provision in this quarter.

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Good set of numbers.

NIM is not very clearly highlighted in the presentation hence putting it here:
On slide #55: For Q3 FY23, the Net Interest Income grew by 27% YoY. Also, the NIM% (annualized) for Q3-FY23 stood at 6.36%

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This quarter is where IDFC first has overtaken the second tier of banks like Bandhan bank, RBL bank, Yes banks of the world.
IDFC first bank is the only bank that is getting more deposit than the loans they give out.
Best part is they are aggressively raising Tier 2 bonds where dilution is stopped and Capital consumption is very very low even though loan growth is high. Capital consumption is just 1.3% were as Risk Weighted Asset increase by 4.4% this quarter where as loan growth is 4.67% means they are giving lower risk loans at the same time their NIMs increase from 5.98% to 6.36%.
I couldnā€™t ask anything more from the bank.
V V is very very categorical not to dilute further at cheap rates and hence aggressive in tier 2 raise.

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https://twitter.com/investor_vineet/status/1616842676778979330?s=20

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Can anyone please post the link of the Q3FY23 con call. Thank you.

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The results are very good. The machine is consistently delivering and now itā€™s been a few qtrs of consistently good loan growth and low provisions, percolating down to good profits. The investor skepticism will definitely further reduce post this result

Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22
NII 2,186 2,272 2,580 2,669 2,751 3,002 3,286
Fee & Other Income 449 658 744 841 899 945 1,117
PPOP 1,013 654 783 840 958 1,184 1,277
Provisions 1,879 475 392 369 308 424 450
Provisions/Net Retā€¦Wholesale Assets 1.73% 0.43% 0.34% 0.30% 0.23% 0.30% 0.31%
PBT -865 179 391 470 650 760 827
Tax -244 68 101 118 165 193 210
PAT -621 111 290 352 485 567 617
Net Retail and Wholesale Funded Assets 108628 111353 116422 124075 132555 140239 147109
CASA Deposits 45896 46269 47859 51170 56720 63305 66498
CASA % 51.75% 51.3% 51.6% 48.4% 50.0% 51.3% 50.0%
GNPA 4.61% 4.27% 3.96% 3.70% 3.36% 3.18% 2.96%
NNPA 2.32% 2.09% 1.74% 1.53% 1.30% 1.09% 1.03%

the management has gone about the transformation of this organisation in a near surgical manner. Attacking issues one by one, rightly prioritizing - focusing on liabilities before switching on the asset growth engine

COVID (retail NPA shooting up), unexpected credit issues (telecom etc.) were big challenges. In retrospect we can say that these were handled well

We still have issues related to the sustenance of

  • stickiness of the high interest driven CASA and
  • high NIMs with low credit cost

CEO is consistently explaining the reason for the same without changing the script. CASA rates are dynamic that can and have changed at will. The money has comeā€¦

the bank has broad based its products suite to improve customer engagement at multiple points - credit cards, not ignoring the corporate book - case in point

The organisation has developed over a decade an expertise in serving a customer segment that pays well ā€“ from Capital First times, this segment is now being served out of the bank instead of NBFC

The management has demonstrated the ability to capture the public interest by crisp and imaginative communication. high interest rates on deposits, crediting on monthly basis against qtr, getting AB as ambassador, 0 feesā€¦ backed by increasing branches and a good technology backboneā€¦ gives comfort that the bank will continue to get traction

Consistently reducing results announcement timeline is also a good step

Equity dilution is clearly an overhang, hopefully it will be accretive to existing shareholders ā€“ marquee investors at premium to CMP

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For information & to compare with idfc first 6.36%

BANKS Q3 NET INTEREST MARGINS (QOQ) SO FAR

HDFCBANK ā†”ļø4.1 % V 4.1 %
ICICIBANK :arrow_up:4.65 % V 4.31 %
KOTAK :arrow_up:5.47 % V 5.17 %
INDUSIND :arrow_up:4.27 % V 4.24 %
FEDERAL :arrow_up:3.49 % V 3.3 %
RBLā¬†ļø4.74 % V 4.55 %
CENTRAL BANKā¬†ļø4.07 % V 3.44%
BANK OF MAHā¬†ļø 3.6 % V 3.55%
UNION BANKā¬‡ļø 3 % V 3.15 %

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Excellent comments so far. However, nobody has touched upon the reason for vertical fall in treasury income. Is it due to RBI rate changes ? Is it real or notional ? What would be likely position in Q4 ?

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Good Comparison; What are the main reasons for better NIM? or IDFC FB taking undue risk to get better NIM? Generally in Banks and NBFCs, NPA creap up after many years or operations. And many of the mistakes are committed many years before.

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According to management in Q3FY23 conference call, higher NIM is due to expertise in providing specialized loans to customers at higher rate.

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They were NBFC & was having a model of giving 16-24 % loan earlier . that model they are leveraging with some more strigent norms as bank they need to be more conservative and they do have access to low cost of fund

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I am not a an expert on financials and learning quite a lot from the comments above. Appreciate all the inputs.

But can anybody draw a parallel between bankā€™s financial performance and the management creating shareholder value? Is it truly something worth holding on to?
(Invested)

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In his CNBC interview VV did not answer the question about what percentage of the loan book is secured vs. unsecured. Instead replied that the unsecured is as good as secured due to availability of cash in the borrowersā€™ bank account which the bank can pull from when required. Does anyone know the numbers or have they been reported anywhere?

Disc: Invested.

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Availability of sufficient cash in borrowers a/c. How can bank pull out with or without the consent of the borrower? The borrower can draw his cash from his a/c anytime, right? Though I am not a financial wizard, my common understanding is unable to digest this supported argument.

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Banks have the right to take the cash out of the deposit accounts of the customers if their loan account becomes overdue. Itā€™s not particular to idfc first bank but for all other Indian banksā€¦

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The larger point Vaidyanathan was trying to make was today the ways of evaluating a prospective loan customer can be done based on the cashflows they have vs traditional ways of doing secured lending. Cashflows are indicative of the EMIs they can pay and thus unsecured lending MAY not be risky. I am sure they look deeper than that however high level that was the point he was making.

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https://twitter.com/CNBCTV18News/status/1617769432557965312?s=20&t=Ma-JHf9dWcQhXDRjtgncCg

1 Like