IDFC FIRST Bank Q2 FY23 Profit After Tax up 266 percent YoY at Rs. 556 Crore

Financial results at a glance

Earnings

• NII grew by 32% on YoY basis to Rs. 3,002 crore in Q2-FY23.

• Net Interest Margin improved by 15 bps on YoY basis to 5.98% in Q2-FY23.

• Fee and Other Income grew by 44% YoY to Rs. 945 crore in Q2-FY23.

• Core operating income (excl. trading gains) grew by 35% YoY to Rs. 3,947 crore in Q2-FY23

• Core operating profit (excl. trading gains) grew by 84% YoY to Rs. 1,052 crore in Q2-FY23

• Provisions were lower by 11% YoY basis at Rs. 424 crore in Q2-FY23 at 1.2% (annualized) of average funded assets.

• Net Profit grew by 266% on YoY basis to Rs. 556 crore in Q2-FY23.

• ROA (annualized) reached 1.07% and ROE (annualized) reached 10.13% in Q2-FY23

Deposits

• Customer Deposits grew by 36% YoY to Rs. 1,14,004 crore.

• CASA Deposits grew by 37% YoY to Rs. 63,305 crore.

• CASA ratio was at 51.28% as of September 30, 2022.

Assets

• Funded Assets grew by 25% YoY to Rs. 1,45,362 crore.

• Retail Loan and Commercial loans grew by 40% YoY to Rs. 1,09,669 crore, of which Home Loans grew by 59% YoY

• Corporate Book (Non-Infrastructure) grew by 20% on YoY basis to Rs. 24,883 crore.

• Infrastructure Financing reduced by 41% YoY to Rs. 5,992 crore (4.1% of funded assets)

Asset Quality

• GNPA and NNPA of the Bank was at 3.18% and 1.09% respectively, QoQ improvement by 18 bps and 21 bps respectively.

• GNPA and NNPA of the Retail and Commercial Finance book was at 2.03% and 0.73% respectively, QoQ improvement by 8 bps and 20 bps respectively.

• Provision Coverage Ratio (PCR) including technical write-off for the Bank is now increased to 83% (excluding the run-down infrastructure book) as compared to 69% at Sep-21.

Capital Adequacy & Liquidity

• Capital Adequacy Ratio (including profits for H1 FY23): Strong at 15.35%.

• Average Liquidity Coverage Ratio (LCR): Strong at 131% for Q2-FY23

The Board of Directors of IDFC FIRST Bank, in its meeting held today, approved the unaudited financial results for the quarter and the half year ended September 30, 2022.

Detailed note On Business & Financial performance of the Bank

Earnings

• Profitability: The net profit for Q2-FY23 grew to Rs. 556 crore from Rs. 152 crore in Q2-FY22 (up 266% YoY) and from net profit of Rs. 474 crore in Q1-FY23 (up 17% QoQ), driven by strong growth in core operating income. For H1-FY23, net profit grew to Rs. 1,030 crore as compared to net loss of Rs. 478 crore in H1 FY22.

• Net Interest Income (NII): NII grew by 32% YoY to Rs. 3,002 crore in Q2-FY23, up from Rs. 2,272 crore in Q2-FY22. For H1-FY23, NII grew by 29% YoY to Rs. 5,753 crore as compared to Rs. 4,457 crore in H1-FY22.

• Net Interest Margin (NIM%): NIM% (quarterly annualized) of the Bank was at 5.98% for Q2- FY23 compared to 5.83% in Q2-FY22 and 5.89% in Q1-FY23.

• Fee and Other Income increased strongly by 44% YoY to Rs. 945 crore in Q2-FY23 from Rs. 658 crore in Q2-FY22. For H1-FY23, it grew by 67% YoY to Rs. 1,844 crore from Rs. 1,107 crore in H1-FY22.

• Core operating income (NII + fee and other income excluding trading gains) increased by 35% YoY to Rs. 3,947 crore in Q2-FY23 from Rs. 2,930 crore in Q2-FY22 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 (including toll and credit card) constitutes 92% of the overall fees for the quarter.

• Operating Expense grew 23% YoY to Rs. 2,895 crore in Q2-FY23 from Rs. 2,359 crore in Q2- FY22. The increase on YoY basis was relatively higher on account of higher disbursals in Q2 FY23 and low base affect in Q2 FY22 due to impact of COVID-19 second wave.

• Core Operating Profit (excluding trading gains) grew by 84% YoY basis to Rs. 1,052 crore for the quarter Q2-FY23 from Rs. 571 crore in Q2-FY22.

• Provisions were lower by 11% on a YoY basis at Rs. 424 crore in Q2-FY23 as compared to Rs. 475 crore in Q2-FY22. The credit cost (quarterly annualized) as % of average funded assets for Q2-FY23 was 1.2%. For H1-FY23, the same was at 1.1%.

• The Bank is well on track to meet the asset quality and credit cost guidance. Based on the improved portfolio performance indicators, the Bank is confident to achieve its FY23 credit cost guidance at lower than 1.5% of the total average funded assets.

Profitability Ratio:

• The RoA (quarterly annualized) of the Bank increased to 1.07% in Q2-FY23 from 0.35% in Q2-FY22 and 0.97% in Q1-FY23.

• The RoE (annualized) of the Bank improved to 10.13% in Q2-FY23 from 2.97% in Q2- FY22 and 8.96% in Q1-FY23.

Deposits

The Bank continues to strengthen its liability franchise with consistent growth in Deposits.

• CASA Deposits grew by 37% YoY to Rs. 63,305 crore as on September 30, 2022, as compared to Rs. 46,269 crore as on September 30, 2021. It was contributed by 55% YoY growth in Current Accounts deposits and 34% YoY growth in Savings Accounts deposits.

• CASA Ratio was at 51.28% as on September 30, 2022, as compared to 50.04% as on June 30, 2021 and as compared to 51.28% as on September 30, 2021. Average CASA Deposits grew by 32% YoY and by 13% QoQ.

• Customer Deposits increased by 36% to Rs. 1,14,004 crores as of September 30, 2022, as compared to Rs. 83,889 crore as of September 30, 2021.

• Branch & ATM Network: As on September 30, 2022, the Bank has 670 branches and 812 ATMs (including recyclers) across the country. The Bank has added 29 branches and 93 ATMs since March 31, 2022.

Funded Assets (Net of IBPC)

• Funded assets increased by 25% YoY to Rs. 1,45,362 crore as on September 30, 2022 from Rs. 1,16,470 crore as on September 30, 2021.

A. Retail Funded Assets:

• Retail funded book is highly diversified over multiple lines of businesses. The Retail funded book increased 41% YoY to Rs. 96,496 crore as on September 30, 2022 from Rs. 68,385 crore as on September 30, 2021.

• Housing loans book grew by 59% YoY as of September 30, 2022.

• Mortgage backed businesses grew 29% YoY as of September 30, 2022.

• Rural Financing segment has grown by 34% YoY on the comparatively lower bases on the rural businesses which were impacted the most by COVID-19 second wave.

• Bank has over 1.2 Mn Credit Cards issued since launch in Jan-21. The credit card portfolio outstanding as on September 30, 2022 stood at Rs. 2,706 crore which more than doubled from a low base on YOY basis. Most of our customers have been acquired by cross-selling to existing customers. Gross spends on Credit Card have increased by 23% sequentially.

• Retail funded asset book constitutes 66% of overall funded asset book at September 30, 2022.

B. Commercial loans:

• The Commercial loan Book of the Bank increased by 34% YoY to Rs. 13,173 crore as on September 30, 2022 from Rs. 9,865 crore as on September 30, 2021.

• This book constitutes 9% of funded assets as on September 30, 2022. Most of the products in this segment are growing from respective small bases.

C. Corporate (non-Infra) funded book increased by 20% YoY to Rs. 24,883 crore as on September 30, 2022 from Rs. 20,822 crore as on September 30, 2021. It increased by 4% on a sequential basis.

D. Infrastructure Financing book reduced by 41% on a YoY basis to Rs. 5,992 crore as on September 30, 2022 from Rs. 10,142 crore as on September 30, 2021. This portfolio now constitutes only 4.1% of total funded assets as on September 30, 2022 as compared to 8.7% as on September 30, 2021. The Bank will continue to run down this legacy infrastructure financing book.

• Other Corporate Funded Assets (Security Receipts, Loans converted into Equity, PTC and RIDF) decreased by 34% YoY to Rs. 4,818 crore as on September 30, 2022 from Rs. 7,256 crore as on September 30, 2021.

• Top 10 Borrowers concentration as % of total Funded Assets has reduced to 3.3% as on September 30, 2022 from 5.5% as on September 30, 2021.

Asset Quality

The overall Asset Quality has improved during the year. The following is the segment-wise Gross and Net NPA:

*No new case was added during the quarter. This is due to the book ramp-down.

• The Bank continues to improve on asset quality on overall basis. The NPA levels in the retail and commercial segment have improved and are around the long-term guidance provided earlier of GNPA 2% and NNPA of less than 1%.

• 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. 21 crore during the quarter to Rs. 760 crore as on September 30, 2022. 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.

• Excluding the NPA in the infrastructure financing book which will run down in due course, the Gross and Net NPA of the Bank would have been 2.27% and 0.63% and the PCR including technical write off would be 83.31%.

• The standard restructured book stood at 1.0% as on September 30, 2022 of the funded assets as against 1.3% as on June 30, 2022.

Capital and Liquidity Position

• Capital Adequacy of the Bank was strong at 15.35% with CET-1 Ratio at 13.67% as on September 30, 2022.

• Average LCR was strong at 131% for the quarter ending on September 30, 2022.

Comments from Managing Director and CEO