IDFC First Bank Limited

Puch · February 2, 2021, 5:14am

This is not correct, they just redeemed the first tranch of the tax tree bonds that were paying 8-9%, another lot is coming up in Feb and more later in the year. In the next 12-15 months 9,500cr of Infra Bonds will be maturing, the interest savings on these bonds alone will add roughly 200- 300cr to NII if they are refinanced at 6%. This is one of the reasons the bank is confident of utilizing the excess of the CASA liquidity on the books.

On top of this they have anoher 9,500cr of high cost Legacy Bonds that are being bought back or retired as and when they mature, these should also keep declining over the next 24 months.

The savings on all these bonds and the impact of the cut in deposit rates on CASA+Term Deposits alone should be sufficient to add 1,000cr+ to NII.

See PDF and below for further details.

3 IDFC Long Term Infrastructure Bonds - Details(2).pdf (86.7 KB)

Puch · February 2, 2021, 5:26am

Writeoffs of 763cr thus far in 9MFY21 and Recovery of Rs 185cr. This probably includes the DHFL bonds that were sold and provisions released.

Krishna1 · February 2, 2021, 7:27am

Link to the interview of IDFC Bank’s Mr V Vaidyanathan to Zee Business:https://www.facebook.com/zeebusinessonline/videos/861798184598332/

What is the reason for the reduction in provisioning?

Have already made provisions for Covid over the last 2 quarters and thus incremental provisioning is now much lesser,Have sufficient provisions as of now.

Asset Quality outlook?

Declared NPA is at 1.33% Gross and 0.33% Net NPA.

This is not representative due to standstill as per Supreme Court order.

Long term Retail Gross NPA used to be 2.27% now after Covid it is 3.88%,
Net NPA is 2.35% on proforma basis.

So about 1.6% NPA rise is purely due to Covid.

Collections have recovered strongly,improving every month steadily.
Touched 98% of the pre-covid levels(Jan-Feb 2020).

Expect the Gross NPA and Net NPA to get back to the long term average of 2.2% and 1.2% respectively in 2-3 quarters.

Bank has unique capability to lend to small businesses/entrepreneurs
with small ticket sizes ranging from 20k to 2-300k and managed to do this keeping good credit quality.

Have 9-10 million customers,3 million MFI customers.

Have given 1.6 lakh toilet loans which has been performing very well.
Lending for cattle,goats etc.

Category has huge potential in India and will surpass the guidance for retail loan book of 1 lakh Crore in 4-5 years.

Response to Credit card launch extremely good.
Have launched initially for own customers.
Huge number have applied in advance even before we have opened the applications to new to bank customers.
Overwhelmed by the goodwill for the bank amongst the people.

Have broken the barrier by offering cards from 9-36% when industry was offering at 35-40%.
9% will be for very few select good customers.

Vodafone Idea:exposure of 3244 Crores.
Provision of 800 Crores already done.
Latest update as per management of Voda idea is that there fund raising plans are on track.
Hoping that they will be able to raise the money needed given the improvement in general market confidence.
So, recovery of this 800 Cr. will get added back to the bank’s profits.

In MSME category Bank gives millions of loans.
Give loans based on the Bank Statement rather than ITR.

Budget is bold especially talking about privatization of PSU banks.

On Morgan Stanley giving low targets for the stock.
When stock was 40 they gave a target of 20
when Covid came they said target is 10.

Even in their latest report there are some mistakes(in their logic and on counting of stressed exposures)
They are not able to understand the business model,looking at the numbers very mathematically that exist as of now not understanding the potential.
The true picture of the bank will emerge after 2-3 years and expect them to change their opinion at that time.

Mr. Vaidyanathan got emotional in the last part of the interview while talking about
those who helped him.

sahil_vi · February 2, 2021, 8:05am

Question for all boarders who understand npa classification. When a customer doesn’t pay EMI for 4 months (sep, Oct, Nov, Dec) and then pays emi in January would they still be classified under GNPA? one thing I’m unable to reconcile is the collection efficiency number with the GNPA number (or the GNPA+stressed+restructuring). If 98% loans are being collected, then how can the GNPA be 4% ?

Ragnar_Danneskjold · February 2, 2021, 8:17am

I think its 98% of pre-covid levels, pre-covid collection levels would not be 100%, so currently its 98% of whatever collection numbers were pre-covid…

sahil_vi · February 2, 2021, 8:21am

I see. If that is the case, I expect there to be significant overlap between the restructuring and GNPA books because it adds up to total of 6% with pre covid levels of close to 2%. In my understanding restructuring might be a part of the GNPA book. Btw, does anyone know about my first question? If a person does not pay 4 emis then pays 5th one would they still be classified as GNPA after the 5th month?

mvc7799 · February 2, 2021, 1:52pm

Lending to under banked people is a micro finance. When Bandhan bank leader in microfinance is trying to diversify. Idfc first bank looking to expand in micro financing. How can we differentiate the ideas Between both these banks

Puch · February 2, 2021, 4:48pm

Sahil it all depends on how much he is able to pay in Jan. If he clears all four months outstanding then the account will be upgraded from NPA to Standard. If he is only able to pay two months EMI then there would still be two EMIs outstanding and his account will fall overdue in the 60-90 days bucket and be upgraded from an NPA to a SMA-2 account but not to a standard account.

sahil_vi · February 2, 2021, 4:52pm

Thanks! This is very interesting to find out. For all such customers who are unable to pay 4 months EMIs it makes sense to restructure their account and extend loan tenure by K months in order to go back to being a standard account.

Puch · February 2, 2021, 4:55pm

Yes but they are only eligible for restructuring if they were a standard account as on March 1, all SMA accounts on that date are ineligible.

bovera · February 3, 2021, 2:47am

One can visit the product page of respective banks. They may sound catering to the same market. But there seems to be differentiation in the target base. One can easily sense the same when products of both banks are compared. Bandhan seems to be focused on customer base of rural and agrarian. Whereas idfcfirst seems to be focused on customer base of urban to semi urban and MSME.

Ragnar_Danneskjold · February 3, 2021, 12:59pm

As investors of IDFC First Bank, should we worry about lack of communication from management…
Apart from no concalls, I feel quality and quantity of post results interviews are also reducing quarter after quarter…
After first 1 or 2 quarterly results, V.Vaidyanathan appeared in interviews to multiple channels and some of those, like the one with bloomberg quint was good and informative…but this time just one ‘cute’ interview with zee business and that too without any tough questions or additional information…

Ajay_Kumar_Kommaraju · February 3, 2021, 3:15pm

My thoughts after Q3 results. We all know the numbers and we analyzed a lot.( I feel too much of granular analysis also dangerous if you are looking for long term.

There is so called HDFC community who bashes and mock others. In the first place HDFC itself is not able to handle the scale ( Net banking , OTP delays, UPI transaction failures… People are sick of this bank and I am one. I Moved away to ICICI for my primary banking and savings for IDFCFB ) .
People tend to forget HDFC, ICICI, Kotak , Axis have two decades of experience under their belt. They have seen good , bad and Ugly. They all had their fair bit of bad times. If you compare with them IDFCB is small and minute bank which is in a startup state.

The new management has done wonderful if not excellent Job in integrating two organizations, bringing people together, Integration of the capabilities from both sides, ,Not an easy job. But they pulled it off and they have done it really quick, all in two years. For this reason alone I can stay invested in this bank for long.
New management brought the bank into profitability ( though small profits. Baby crawls at the beginning not running …baby steps guys ) all in just four to five quarters. Past three quarters they posted profits , I know they are from trading gains or balance sheet gymnastics …whatever they have made it) . So second reason to stay invested for Long.

I don’t know much about banking sector few years back. Reading the IDFCFB investor presentation itself taught me most of the banking terms. I read few Q3 investor presentations of other banks , but the way IDFCFB disclosed the numbers with clarity no one did . May be this is the reason people over analyze and loose focus. This makes third reason to stay invested for long.

Bank is investing on digital capabilities, they just bought amazing credit card product to the market while dealing ( legacy loan cleanup , restructuring, pandemic…etc). This bank knows the importance of technology and scalability ( so that they can avoid HDFC situation) . Fourth reason to stay invested for long.

what I want to convey to you guys is, Sometime we sell stock or quit on great companies by overlooking or seeing minor things in magnifying glass. If you believe the management give them the time they need and you will be not be disappointed.
disc: Invested

Mukund_Bubna · February 3, 2021, 7:18pm

The money, if at all, will start flowing April onwards. This is after Q4. I think by Q4 banks will have to show their actual accounts. So this money might not help. Moreover, yes, money will start coming, but here is no guarantee thatr the money will start coming to IDFC’s borrowers - it might or it might not.

Mukund_Bubna · February 3, 2021, 7:23pm

This 98% can be the number of borrowers and not the value of borrowing. Not sure though

Lukesh_Singla · February 4, 2021, 1:59am

Fully agree with your thought process. Too much analysis leads to paralysis. Stock can be at 10 PE or 100 PE, everything gets rationalized.

For me, Bank has hopefully cleared most minefields. They seem honest, take most provisions upfront. They are the only ones who disclosed and provided for Vodafone/idea exposure.

The way I justify (to myself), they will have same AUM in 2 years as Bajaj Finance today (1.3T). Similar Asset profile with better liability structure. If they get even 1/3d of the valuation of Bajaj Finance, we will have a 4 bagger on our hands with growth projected as far as the eye can see.

What bothers me though is that every quarter has been one or the other reason for higher provisions. IDFC Legacy exposure, Vodafone supreme court ruling, Covid are all valid reasons but it still bothers me.

I have investment in DCB bank which showed so much promise but has just not delivered. They have just done and said same thing over and over again for years.
I am hoping IDFCFirst will be different.

hrdk3110 · February 4, 2021, 6:34am

Mukund_Bubna · February 4, 2021, 12:46pm

What is concerning for me personally is that the management doesn’t do concalls. In my opinion, the bank is going through a relatively difficult phase ( Covid + setting up the base of the bank) and thus I, as an investor, would want the management to be more active with the investors. Sure every quarter VV does come on 2-3 channels but every time he says exactly the same things in all the news channels — I wonder if the news anchors are almost led to asking the same questions. Please be clear that I am not raising any question over management’s honesty, but there is only so much information available to us investors that the banks wants us to give.

P.S- VV said that he is looking for another teacher and might gift his shares again

Soumyadeep_Majumdar · February 4, 2021, 1:03pm

Completely agree with the prevailing sentiment around the lack of concalls. However, in my opinion, I believe the bank is following a robust plan on compensating for it through some very candid interviews and a series of analyst/investor conferences lined up for February. I was just looking at this filing yesterday and there are 5 conferences lined up in February.

8th February - Daiwa Investment Conference Tokyo 2021
9th February - Bank of America 2021 India Financials forum
10th February - Spark Capital BFSI Conference 2021
11th February - JM Financial BFSI Conference 2021
12th February - 16th Edelweiss e-conference

Puch · February 4, 2021, 3:48pm

Agree, the communication strategy needs to be relooked at as investors are not able to get clarity on a lot of the issues. The ET now interview was frankly a waste of time, I don’t think the anchor had any idea about the latest results and all the questions were very high level and general in nature. Nothing about the increase in NPAs, provisions, restructured book etc. Would have loved to hear how the situation was in January and why the management is so confident of the proforma NPAs normalizing in the next few quarters.