IDFC First Bank has released its Annual Report on Tuesday 24th August 2021. Here are some important extracts from the Annual Report of the Bank.
IDFC First Bank has announced its Annual Report for Financial Year 2020-21 on Tuesday, 24th August 2021. In this article, we will be discussing some of the important points which were addressed by MD & CEO of the Bank, Mr. V. Vaidyanathan.
- In the Annual Report, Mr. V. Vaidyanathan has said that out of the total debt of Rs. 1.86 Lakh Cr. of Vodafone Idea (Vi), it owes around 1.5 Lakh Cr. to the Government of India and the rest is to be paid to the financial institutions. Hence, the biggest threat with the fall of Vi will be to Government and comparatively very little to the financial institutions.
- In Section 4 of the Address of CEO & MD of the bank in the annual report 2020-21, he has discussed the incremental profits of the Bank wherein Strong Incremental Profitability of Retail Lending Business.
- The Borrowing Cost of the Bank is 5% where incremental lending on the retail side is around 14% leading to a massive difference of 9%, 7% post-credit cost, and others which is a quite big spread for the bank.
- The Current Return on Equity is negative due to loss incurred in Q1FY22 on account of high provisioning. But the effort towards the retail side, the Bank is trying to create a Return on Equity (ROE) of around 18% to 20%.
- These focused efforts of the Bank are not restricted only to the Retail Side, but it will also look forward towards Corporate Lending via proper risk management. Here, the bank is expecting a Return on Equity of around 14%-15%.
- The Legacy Loans are carried on by IDFC Bank of Infrastructure Loans which are a huge burden for the IDFC First Bank. Also, IDFC Bank merged with Capital First with Legacy Liabilities worth Rs. 28,000 Cr. for which the Bank Pays Interest Rate of 8.66%. This liability is going to mature in the coming period, after which Bank will save a cost of around Rs. 1,000 Cr. per year.
- Further, this will also lead to an increase in the profitability of the bank.
- The Reason behind the low Return on Equity (ROE), high Cost to Income Ratio is because IDFC First Bank is a new bank, just 2-2.5 years old. During this period of 2.5 years, the bank has opened around 390 Bank Branches, more than 550 ATMs, 12,000+ Employees which are the upfront cost hence leading to higher Cost to Income Ration.
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- Mr. V. Vaidyanathan also said that comparing a Development Finance Institution turning Retail Oriented Bank which has a history of just 2.5 years with the Banks in operation from the last 15 years is not fair and the Bank should be awarded some time to present itself.
- The Incremental Return on Capital of the IDFC First Bank is well explained by Mr. V. Vaidyanathan. When the IDFC Bank and Capital First Merger i.e., in Q3FY19, the Total Funded Assets was Rs. 1.04 Lakh Cr. which has now increased to Rs. 1.17 Lakh Cr. in Q4FY21 amounting to growth of 11.9% in 2.5 years.
- Whereas the Core Income (Net Interest Income plus Fees) has increased by a significant 75% during the same period from Rs. 1,495 Cr. in Q3FY19 to Rs. 2,616 Cr. in Q4FY21.
- The rise in Core Income larger than the Funded Assets show the exceptional operational performance of the bank.
- The Core Operating Profit of the Bank includes Net Interest Income plus Fees Income less Trading Gains, etc. for Q4FY21 was Rs. 460 Cr. which has risen by 66.9% from 276 Cr. in Q3FY19. This rise in Core Operating Profit shows the strength of the bank.
- The Bank has also given vision regarding NPAs of 2:1:2 wherein the Bank will try to cap the Gross NPA to 2%, Net NPA to 1%, and Provision to the 2% of the funded assets.
Looking at the above-presented figures of growth in Funded Assets, Core Income, Core Operating Profit, it seems that Bank should be awarded some more time to perform well. If all the strategies of the Bank go well, and all the objectives are achieved with the specified time-limited, then this stock can get re-rated. But as of now, this stock will be a call for an Aggressive Investor. Hence, do invest in this stock with proper research and study, and after analyzing risk profile as well. Do consult a financial advisor before making any investment decisions.