IDFC FIRST Bank Q3 FY22 Results Press Release

IDFC FIRST Bank Q3 FY22 Profit After Tax up 117% YOY at Rs. 281 crore

Mumbai, January 29, 2022:

Financial results at a glance

The Board of Directors of IDFC FIRST Bank, in its meeting held today, approved the unaudited financial results for the quarter and nine months ended December 31, 2021.

Earnings

• Net Profit grew by 117% YoY basis to reach Rs. 281 crore in Q3-FY22
• Core operating profit (excluding trading gains) grew by 54% YOY to reach Rs. 745 crore
• NII grew by 36% on a YoY basis to reach Rs. 2,580 crore in Q3-FY22. NIM stood at 5.90% excluding interest income pertaining to prior period for one telecom account. Including the same, NIM is at 6.18% for the quarter
• Fee and Other Income grew by 13% QoQ and 28% YoY to reach Rs. 744 crore in Q3 FY22
• Core operating income (excl. trading gains) grew by 34% YOY to Rs. 3,324 crore in Q3-FY22
• Provisions other than tax were lower by 32% Y-o-Y basis at Rs. 392 crore in Q3-FY22 

Deposits

• CASA balance: Grew by 18% YoY basis to reach Rs. 47,859 crore
  • CASA ratio: 51.59% as of Dec 31, 2021, as compared to 48.31% as of Dec 31, 2020
  • Avg. CASA Ratio: 50.54% as on Dec 31, 2021, as compared to 44.66% as on Dec 31,2020
• Customer Deposits: Grew by 11% YoY to reach Rs. 85,818 crore

Funded Assets & Asset Quality

• Funded Assets: Grew by 11% YoY to reach Rs. 1,22,219 crore
  • Retail Loan and Commercial Finance grew by 26% Y-o-Y to reach Rs. 86,052 crore, primarily driven by growth in Home Loans which grew by 44% YOY
• Asset quality at Bank Level: GNPA and NNPA reduced sequentially by 31 bps and 35 bps to reach 3.96% and 1.74% respectively. Gross and Net NPA of Retail and Commercial Finance reduced by 53 bps and 38 bps on a sequential basis.
  • PCR increased from 52.06% as at Sept 30, 2021 to 57.06% at Dec 31, 2021 in order to strengthen the balance sheet. (67.16% including technical write-off)
  • Collection Efficiency: Early bucket collection efficiency in Retail surpassed PreCOVID levels for both urban and rural retail loans

Capital Adequacy & Liquidity

• Capital Adequacy Ratio: Strong at 15.38% with CET-1 Ratio at 14.83%
• Average Liquidity Coverage Ratio (LCR): Strong at 149% for Q3-FY22.

DETAILED NOTE ON BUSINESS & FINANCIAL PERFORMANCE OF THE BANK

Earnings

• Net Interest Income (NII): NII grew by 36% YOY to Rs. 2,580 crore in Q3 FY22, up from Rs. 1,892 crore in Q3 FY21.
• Net Interest Margin (NIM%): NIM (quarterly annualized) of the Bank improved to 5.90% for Q3-FY22 from 4.80% in Q3-FY21 and 5.76% in Q2-FY22.
  • NIM of the current quarter and Q3-FY21 mentioned above excludes benefit of interest recognized on a telecom account based on recovery which pertains to earlier periods. Including the same there was a positive impact of 28 bps on NIM for Q3 FY22 and 24 bps in Q3 FY21 and actual NIM is higher to that extent.
• Fee and Other Income increased strongly by 28% YOY to Rs. 744 crore in Q3 FY22 from Rs. 582 crore in Q3 FY21. The increase was 13% on a sequential basis.
• Core operating income (NII + fee and other income excluding trading gains) increased by 34% YOY to Rs. 3,324 crore in Q3-FY22 from Rs. 2,474 crore in Q3-FY21 aided by strong NII and Fee income growth.
  • Fee Income growth was contributed primarily by the fees related to loan sourcing, higher transaction led fees, distribution and wealth management fees etc. Retail fees constitutes 82% of the overall fees for the quarter.
• Trading gains were lower at Rs. 25 crores during Q3-FY22 account of rise in yields and market volatility as compared to Rs. 269 crores during Q3-FY21 and Rs. 122 crores in the previous quarter.
• Operating Expense grew 30% YOY at Rs. 2,579 crore for Q3-FY22 as compared to Rs. 1,991 crore for Q3-FY21 on account of increased loan origination cost, higher digital transaction cost due to festive season and lower base effect as corresponding quarter in FY21 was impacted by Covid.
• Core Operating Profit (excluding the trading gains) grew by 54% YOY basis to Rs. 745 crore for the quarter Q3-FY22 from Rs. 484 crore in Q3-FY21.
• Provisions were lower by 32% and 17% on a Y-o-Y and Q-o-Q basis respectively at Rs. 392 crore in Q3-FY22 as compared to Rs. 574 crore in Q3-FY21 and Rs. 475 crore in Q2 FY22.
  • During Q3 FY 22 and in Jan 22, the bank received Rs. 2,000 crore towards redemption of bonds pertaining to one large telecom account. The Bank has released provisions for Rs. 487 crore created against this account. 
  • During the quarter, the Bank has made the provisioning policy more conservative and increased provision coverage ratio from 52% to 57% and has strengthened the balance sheet. During Q3 FY 22, the bank has made provision of ~Rs. 250 crore towards legacy corporate and infrastructure accounts.
  • The Bank has not utilised the Covid provision during the quarter and carries Covid provisions of Rs. 165 crore as of December 31, 2021.
  • The Bank is broadly on track to meet the asset quality and credit cost guidance. Based on the improved portfolio performance indicators, the Bank now feels confident to improve its credit cost guidance for FY 23 at 1.5% on funded assets.
• Profitability: The net profit for Q3-FY22 grew by 117% to Rs. 281 crore from Rs. 130 crore in Q3 FY21, driven by strong growth in core operating income and lower provisioning. The profit before tax grew by 111% to Rs. 378 crore in Q3-FY22 from Rs. 179 crore in Q3-FY21.

Deposits

The Bank has strengthened its liability franchise.

• CASA Deposits posted strong growth, rising 18% YoY to reach Rs. 47,859 crore as on December 31, 2021, as compared to Rs. 40,563 crore as on December 31, 2020.
• CASA Ratio was at 51.59% as on December 31, 2021, as compared to 48.31% as on December 31, 2020. The CASA ratio was at 51.28% as on September 30, 2021.
• Customer Deposits increased by 11% to Rs. 85,818 crores as of December 31, 2021, as compared to Rs. 77,289 crore as of December 31, 2020.
• The quality of the deposits franchise has improved over the last two years. CASA + Term deposit < Rs. 5 crores was > 85% as on December 31, 2021
• The Fixed Deposits of the Bank have the highest rating “FAAA/Stable (pronounced F Triple A) by CRISIL.
• Branch & ATM Network: As of December 31, 2021, the Bank has 599 branches and 727 ATMs (including recyclers) across the country.

Funded Assets

Gross funded assets increased by 11% from Rs. 1,10,469 crore as on December 31, 2020 to Rs. 1,22,219 crore as on December 31, 2021

Effective December 31, 2021, the Bank has reclassified businesses into retail loans, commercial loans, infrastructure and corporate for greater visibility of underlying portfolio.

A. Retail Funded Assets:

• Retail funded asset book constitutes 62% of the overall funded asset book at December 31, 2021.
• Retail funded book is highly diversified over multiple lines of businesses. The Retail funded book increased 28% YoY to Rs. 75,556 crore as on December 31, 2021 from Rs. 58,988 crore as on December 31, 2020.
  • Housing loans book grew by 44% YOY as of December 31, 2021. Mortgage backed businesses grew 26% YoY as of December 31, 2021.
• Bank has over 5.3 lakh Credit Cards in force as on December 31, 2021 with portfolio outstanding of Rs. 1,662 crore. As of December 31, 2021, most of our customers have been acquired by cross-selling to existing customers.

B. Commercial loans:

• The Commercial loan Book of the Bank increased by 16% YoY to Rs. 10,496 crore as on December 31, 2021 from Rs. 9,072 crore as on December 31, 2020. This book constitutes 9% of funded assets as on December 31, 2021.

We have significant presence in the Retail lending market of the country and are confident of maintaining growth momentum going forward. We are confident of ~25% growth from hereon for the foreseeable future. 

C. Corporate funded book decreased by 3% YOY from Rs. 22,374 crore as on December 31, 2020 to Rs. 21,647 crore as on December 31, 2021. However, it increased by 4% on a sequential basis.

• Others (Including Security Receipts, Loans converted into Equity, PTC and RIDF) decreased by 23% YOY from Rs. 8,433 crore as on December 31, 2020 to Rs. 6,470 crore as on December 31, 2021
• Infrastructure book reduced by 31% on a Y-o-Y basis and now constitutes 6.6% of total funded assets as on December 31, 2021 as compared to 10.5% as on December 31, 2020. As stated earlier The Bank will continue to run down this legacy infrastructure financing book.
  • Top 10 Borrowers concentration as % of total Funded Assets has reduced from 6.3% as on December 31, 2020 to 4.3% as on December 31, 2021.

Asset Quality

The Asset Quality improved across all business segments at the bank in Q3 FY22, as compared to Q2 FY22. The following is the segment-wise Gross and Net NPA:

• We see that the impact of COVID second wave is gradually diminishing and this improvement is showing in the above improvement in asset quality.
• During the current quarter, a toll account of Rs. 248 crore had slipped into NPA which led to increase in NPA % in infrastructure segment. This account was part of the reported identified standard asset pool in previous quarters. 
• One infrastructure loan (Mumbai Toll Road account) which become NPA during Q1 FY22, continued to pay its dues partially and the principal outstanding reduced by Rs. 19 crore during the quarter to Rs. 819 crore as of December 31, 2021. Gradually the cash flows of this account are likely to regularize, as traffic volumes on the Mumbai road come back to normalcy. While the account is NPA as of now, we expect to collect our dues and expect eventual losses on this account to be not material in due course.
• On the overall Bank level, but for this one infrastructure account, which we hope to cure in due course, the GNPA and NNPA of the Bank would have been 3.24% and 1.14% respectively as of December 31, 2021 and the PCR of the Bank would have been 75% including technical write-off.
• The Bank’s proactively Identified Stress Assets pool of legacy accounts (over and above the disclosed NPA numbers), reduced to Rs. 1,083 crore as on December 31, 2021 compared to Rs. 2,528 crore as on December 31, 2020. The Bank now holds provision cover of 81% on this proactively identified stressed pool.  
• In the Retail Loan segment, the quality of incremental business originations continues to improve, based on data of the first EMI bounce rates. We continue to witness improved collection efficiency. The collection efficiency on early buckets in Dec-21 are better than the collection efficiency on same buckets of Dec-20.
  • The early Bucket Collection Efficiency (urban retail) in Dec-2021 was at 99.4% (including the cheque clearances and collections on the bounce cheque cases within the same month). This has surpassed the pre COVID level (Feb-2020) of 98.9%.
  • The early Bucket Collection Efficiency in Rural Retail segment was impacted in Q1FY22 but improved in Sep-21 to reach 99.2% and to 99.4% in Dec-21 as compared to the Pre-COVID level (Feb-20) of 99.4%.

Capital and Liquidity Position

• Capital Adequacy of the Bank was strong at 15.38% with CET-1 Ratio at 14.83% as compared to regulatory requirement for the Capital Adequacy Ratio of 11.5% with Tier-I Ratio of 9.5%. 
• Average LCR was strong at 149% for the quarter ending on December 31, 2021.

Comments from Managing Director and CEO

Mr. V Vaidyanathan, Managing Director and CEO, IDFC FIRST Bank, said, “The business conditions are normalising. We are seeing strong growth in credit once again; our home loan business has grown by 44% year-on-year. For the last three years, we have been laying a strong foundation by building a strong deposit base, increasing CASA%, dealing with legacy loans, and scaling up core operating profits. Our net interest margin is strong at 5.9%. We have now begun to see the benefit of this work in terms of profitability. 

“The strength of our business model is seen from the fact that, while the loan book has grown by only 17% since the merger quarter to December 2021, the core operating profits has grown by over 100% during the same period. This increase in profitability demonstrates the power of the bank’s business model. All our credit indicators, including cheque bounces, collections, recovery, vintage analysis show that the credit performance is improving.  Based on these analysis, we would like to improve our guidance for credit costs next year FY 23 to 1.5% of the funded assets, absence of any lockdowns.” 

About IDFC FIRST Bank  

IDFC First Bank was formed by the merger of erstwhile IDFC Bank, promoted by renowned infrastructure financing institution IDFC Ltd. and leading technology NBFC, Capital First. IDFC FIRST Bank, has a balance sheet of Rs. 1,74,232 crore, and has provided over 30 million loans in its combined history and serves customers in over 60,000 villages, cities and towns across the length and breadth of the country. The bank believes in making customer-first products, and was the first universal bank to offer monthly interest credit on savings accounts, life time free credit cards with dynamic and low APR rates, and many other such interesting products. 

The Bank’s vision is to build a world class bank in India, guided by ethics, powered by technology, and to be a force for social good. Our mission is to touch the lives of millions of Indians in a positive way by providing them high-quality banking services. 

In a short time, the Bank has expanded to 599 branches, 201 asset service centres, 727 ATMs and 620 rural business correspondent centres across the country, a next-generation net and mobile banking platform and 24/7 Customer Care services, and is incrementally growing digitally. IDFC FIRST Bank is committed to bring high-quality banking at affordable rates to India. The Bank also offers high quality technology-enabled corporate banking solutions, contemporary cash management solutions, fleet card and fastag solutions and wealth management solutions.

CAUTIONARY STATEMENT

“Statements made in this release may contain certain forward-looking statements based on various assumptions on the Bank’s present and future business strategies and the environment in which it operates. Actual results may differ substantially or materially from those expressed or implied due to risk and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India and abroad, volatility in interest rates and in the securities market, new regulations and Government policies that may impact the Bank’s businesses as well as the ability to implement its strategies. The information contained herein is as of the date referenced and the Bank does not undertake any obligation to update these statements. The Bank has obtained all market data and other information from sources believed to be reliable or its internal estimates, although its accuracy or completeness cannot be guaranteed.”