ValuePickr Forum

IDFC First Bank Limited

@P Puch
If you could please explain Tier 2 bonds?
what exactly does that mean and what will be the impact on the bank?

Tier 2 bonds are essentially considered equity as they are perpetual bonds and are added to the networth or book value of the bank when computing leverage ratios and capital adequacy. They are debt as they payout a fix coupon but are a great way to raise capital without issuing new shares or diluting existing shareholders. During the yes bank fiasco the Tier 1 bonds were written off but the rest of the capital structure was honoured so it didn’t effect their tier 2 bonds. I am not sure how many tier 2 bonds yes bank had outstanding at that time but this link seems to suggest that they issued 4000cr of such bonds in 2018.

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My view: Disc: Invested.
Bank Emerged after merger with new Management.
Professional and Competent CEO
Loan book is shifting and focussing on Retail as he Said.
CASA is improving at good rate.
IDFC, New Partner, W. Pincus old Partner, Big Players i.e. HDFC, ICICI are trusting and investing in the Company.
Imagine how difficult it is for a company to raise 2K Crore during COVID.
If Net Profits turns positive, IFB will be on radar for many.
Macros are not good, will take time.

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Just to clarify , Mr.V said - yes there will be Corona impact. But impact will be at a Industry level - meaning (reading between lines) if every bank is affected due to something on Corona , IDFC bank also have it but he doesnt see any IDFC first specific extra issue cropping up

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True. Corporate Book gives pain after coming out of moratorium. Hope the New Debt and Equity comes into play at that time…In the present time, a bank cannot be agressive as there are more chances of NPA’s. IDFB shall focus on consumer durables like Bajaj Finance with attractive spending cards etc…

Can you please provide the source for the figure of 30% secured?? Consumer Loans are just 19k cr out of 51k cr retail book in December 2019. Rest are LAP, MSME and Housing.

And even the Consumer Loans require a high CIBIL score to get approved, VV had mentioned this in one of his interviews

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This is based on an old article from Aug 2019, the pledge was removed recently

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Will IFB declares profit this quarter? Keeping in view of the latest RBI Circular and regular NPA’s.

“Seemingly” Good results from IDFC Bank
Need to wait for commentary…
Investor Presentation:


Results:

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Am I right in concluding that the 319cr trading gain would have come from the Yes Bank stake sale? Without that, the bank would have posted a loss.

Disc: Invested

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I think you are not.

  1. I do think they have been fairly conservative in taking provisions (slide 4):
    "The Bank was required to make COVID-19 related provision of Rs. 25 crores pertaining to accounts where asset classification
    benefit was given. The Bank has provided the entire amount in Q4-FY20 itself and has additionally taken Rs. 200 crores of COVID-19
  2. (Slide 38) “Further, the bank has taken additional Rs. 200 crores of COVID-19 related provisioning proactively for overdues of 1-89 days taking total COVID provisions to Rs. 225 cr.
    Excluding the COVID provisions of Rs. 225 crores , the normal credit provisions for Q4 20 would have been Rs. 454 crores; Of the Rs. 454 crores of normalised provisions, Rs. 349
    crores pertain to Retail loans and Rs.105 crores pertain to wholesale loans
    related provisioning proactively for over-dues of 1-89 days taking total COVID-19 provisions to Rs. 225 crores.”

So if we exclude the pro-active provisions (which aren’t required to make) and the trading gains, they’d still have 14 crore of profits. It’s minor, but it’s there.

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Good result.

Disc: invested at higher price, would look to add after September results

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At what price of each share they have sold ?

They only invested 250cr and only sold 25% of their holding so its not from there but from their investment book which is 40,000cr. All banks have made trading gains on the their gsec holdings last quarter

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I am seeing comments in social media that Covid provision of 225 Cr. is very less.

Axis & ICICI have covid provisions at 2700 & 3000 cr.

Given these 2 banks are far bigger than IDFC, am I right in saying Covid provision as a % of book is inline with the industry ?

additional covid provisioning of 2000 cr to be done on JJune first week…

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They have already provided to their corporate and infra book to the tune of 49%.so even those accounts are under moratorium, the provision is more than what is required as per rbi and way more than all the peer banks. Now coming to retail, microfinance and agriculture, they have to take 5% provision as on march and rest 5% in june. They have taken a provision of 225 crore on it along with regular provisions. Mr vaidyanathan has been clear in his intent IMHO. He had earlier done provision on accoounts which are standard and provision was not required. He is a prudent risk manager. I feel the provision is less, but i trust that the Man knows better than us about the quality of books and we should trust his judgement on it.

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My belief is, a Retail borrower always pays back if he has money and always want to maintain the credit score. So, am more comfortable with retail than a corporate house which could go belly up and dont care.

Having said that, its key that Covid situation doesn’t affect jobs in a big way. This is a big uncertainty.
I would look at Retail borrowers of Bajaj Finance & Capital first arm in same way. Both will have similar demography of borrowers. So, impact wise both should have similar impact. But capacity to bear that blow could be easier at Bajaj due to its superb balance sheet. But IDFC first being a bank should be able to bear that IMO.

Looking forward to the mgmt commentary.

I do hope that in this extraordinary times, banks takes a pause at branch expansion & consolidates.

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They mentioned 35% in the Investor presentation as the % loans for which moratorium has been given. But then they have taken only 225 cr as provisions. Others have taken bigger provisions to be on the safer side. I think we may see bigger NPAs and provisions in the next 2-4 quarters