Unique evolution,
On getting a license, it was created out of a demerger of infrastructure financing business followed by the merger of erstwhile Capital First;
Stress build-up and franchise investment resulted in a weak Return profile during the transition phase;
2/25
After merger of Capital First, with Mr. V. Vaidyanathan at the helm, management is focused on building a high-yielding retail banking franchise (average retail yield at >15%);
Infrastructure loans to be completely run down, selective lending in non-infra corporate segment:
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Of the wholesale exposure, infra book has been almost halved since merger to Rs108bn and will be further rationalized to a very negligible proportion in 3-5 years;
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Remarkable transition in asset and liability profile post the merger:
After having rolled out a 5-year strategic roadmap towards targeted RoA and RoE of 1.4-1.6% and 13-15% respectively, it has made significant strides on most operating parameters:-
5/25
1) Realization of assets (>30% CAGR over FY19-FY21, constituting 63% of assets);
2) Granularity of deposits тАУ average CASA deposits surged to ~50% & deposits of
3) Sharp spike in NIM from <2% in FY18 to ~5% in FY21 and very much on track towards 5.0 - 5.5%.
Retail GNPAs rise amidst disruption; wholesale portfolio adequately covered:
With FY21 slippage run-rate of >5% (>7% for retail), GNPAs rose to 4.15% (from 2.6% in FY20);
Retail GNPAs at 4.01% are higher by 175bps from the pre-covid average.
7/25
Restructured pool is equivalent to 1.3% of retail assets.
Despite the incremental stress in FY21, credit cost was contained at 250bps for FY21 supported from adequately covered and write-back in wholesale portfolio;
8/25
Quarterly run-rate accretion of Rs 50bn-70bn of retail assets suggests it is on track towards the targeted Rs 1trn of retail assets By FY23/FY24. On overall loan base of Rs1.4trn -1.7trn by then, it would contribute 70-75% to the overall AUM.
9/25
Coming from a high-growth phase in retail (>25% in FY21), the impact of covid second wave disruption needs to be closely monitored.
Post becoming a bank, the erstwhile IDFC Bank took early steps to diversify away from infrastructure into corporate and retail banking;
10/25
Bank has actively invested in people, processes, products, infrastructure and technology to put together all the necessary building blocks towards a stronger foundation Essential for a long-term sustainable growth engine;
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However, this has come at a cost, and the cost structure hovers much higher compared to peers (IDFCFBтАЩs тАШcost to incomeтАЩ at >70%);
Current return profile is dragged by higher тАШcost to incomeтАЩ, lower fee income, and elevated credit cost;
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Rapid progress in realization of liabilities:
It has devised a strategy to build CASA deposit franchise that has scaled up more than 5x since FY19
Average CASA deposits in FY21 surged to ~50% (from less than 10% in FY19); this compares with the target of 30% set for FY24
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Reduced concentration of bulk deposits/borrowings:
Bank has successfully replaced wholesale deposits/borrowings with retail customer deposits тАУ proportion of core retail deposits is now up to 77% (targeted to breach target of 80% by FY24);
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Consequently, concentration of the top 10 depositors is down to mere 6% (from 29% during merger) as wholesale deposits have contracted more than 25% in a single year;
Bank is still carrying a legacy long-term/infra & other bonds of Rs 240bn at a higher cost of 8.5-9.0%;
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Replacement of the same with low-cost retail deposits will itself support reduction in the cost of funding lower even from the current level.
16/25
Bank added more than 350 branches in past 24 months taking total tally to 596 branches;
Medium-term plan is to take it to 800-900 branches in 3-4 years; However, it will now allow churning & productivity ramp-up of the existing network before aggressively adding more branches.
Two consecutive savings rate cut of 100bps each (in FebтАЩ21 and MayтАЩ21) to 5% will further cushion average savings deposit cost that hovered high at 6.8% in 9MFY21;
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Passing the benefit of this lowered cost, the bank is planning to participate in the prime home loan market at competitive rates тАУ though this will not entirely offset the benefit and reflect in an uptick in NIM.
19/25
Retail GNPA & NNPA as of FY21 are higher by 175bps & 77bps respectively from pre-covid average GNPA & NNPA;
Bank restructured loans worth Rs10.7bn of which, Rs9.6bn was in retail segment & Rs1bn in corporate; This is equivalent to 1.3% of retail assets & 0.9% of the overall AUM.
The quality of customer profile has improved with тАШnew to creditтАЩ customers constituting 10% of the disbursals (By value) in Q4FY21 vs 18% in Q4FY19. Also, 83% of the customers sourced (by value) in Q4FY21 had credit bureau score above 700 as compared to 61% in Q4FY19.
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Cost efficiency and retail fee enhancersтАУ triggers to RoA improvement:
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Despite the incremental stress in FY21, credit cost was contained at 250bps for FY21;
In the context of covid second wave and coming from a high growth phase in retail (>25% in FY21), the impact of disruption needs to be closely monitored.
23/25
RoE profile still low; incremental unit economics superior:
Incremental retail disbursements have potential RoE profile of >20%- albeit currently retail liabilities (due to huge investments), corporate centre cost (due to legacy borrowings) are dragging it down;
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Key risk factors:
ЁЯСЙStrategy execution
ЁЯСЙRetailisation of liabilities- Behavior of SA deposits in the coming deposits will be key to garner confidence on the strength of the liability franchise foundation it has built over past 2-3 years;
End of Thread ЁЯз╡
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