On 18th December, 2018, IDFC Bank Ltd. and Capital First Ltd. announced the completion of merger and the merged entity will be called IDFC First Bank (“IDFC First” or the “Bank”).
IDFC First Bank will now offer a wider array of retail and wholesale banking products, services and digital innovations, to a greater number of customer segments. It will serve 7.2 million customers through its 206 bank branches, 140 ATMs, 454 rural business correspondent centers across the country’s urban and rural geographies.
On a combined basis, IDFC First Bank has on-book loan assets of Rs. 104,660 Cr., for the quarter ended December 31, 2018. The retail loan book will now contribute 34.62% to the overall loan book.
Before Merger, the credit book continues to be largely driven by corporate portfolio which formed 72% of the total book.
|Loan Book (Rs. Cr.)||Dec-17||Sep-18||Dec-18*|
|Priority Sector Lending||9,203||8,256||8,575|
|Stressed Equity and SRs||3,194||3,081||3,040|
|Total Loan Assets||69,065||75,337||1,04,660|
* Post merger with Capital First
Pro-Forma Financials (Q2 FY 19) before the merger
|Capital First||IDFC Bank||IDFC First Bank|
|Loan Asset (on-Book)||Rs. 27,351 Cr||Rs. 75,337 Cr.||Rs. 102,688|
|% of Retail Loan Assets||89%||13%||33%|
|Total Borrowing + Deposits||Rs. 24,550 Cr||Rs. 101,232||Rs. 125,782|
|CASA||–||Rs. 6,426 Cr||Rs. 6,426 Cr|
|Net worth||Rs. 2,928 Cr||Rs. 14,776 Cr||Rs. 17,704Cr|
|NII||Rs. 615 Cr||Rs. 451 Cr||Rs. 1,066 Cr|
|Total Income||Rs. 695 Cr||Rs. 571 Cr||Rs. 1,266 Cr|
|Opex||Rs. 327 Cr||Rs. 552 Cr||Rs. 879 Cr|
|Provisions||Rs. 210 Cr||Rs. 601Cr||Rs. 811 Cr|
|PAT||Rs. 105 Cr||Rs. -370 Cr*||Rs. -265 Cr|
*The Bank took one-time provisions relating to stressed infrastructure loans. Without such one-time charge off, the PAT for H1 FY19 would be Rs. 81 Cr.
Quarterly Results (Standalone)
|Particulars||Q3 FY 2018||Q2 FY 2019||Q3 FY 2019||Q-o-Q %||Y-o-Y %|
|Net Interest Income
(In Rs. Cr.)
(In Rs. Cr.)
|PAT (In Rs. Cr.)||146.11||(369.69)||(1536.01)||315%||-1151%|
|EPS (In Rs.)||0.43||(1.09)||(3.17)||191%||-837%|
Q3 FY 2019 Highlights:
- Net Interest Income for the quarter ended on 31 December 2018 was Rs. 1,145 Cr.
- Net Interest Margin for the quarter ended on 31 December 2018 was at 3.27%
- Net Loss of Rs 1,538 Cr., mainly on account of a one-time exceptional item.
- The management attributed the high loss to amortization of Rs 2,600 Cr. worth of intangibles, mainly goodwill, arising out of the merger move.
- Gross NPAs stood 1.97% and net NPA at 0.95% while the provision coverage ratio stood at 72.9.
- Total capital adequacy ratio as per Basel III guidelines, was at 16.51, of which tier I was at 16.14.
|Name||Last Price||Market Cap.||NPA||P/E||P/B|
|City Union Bank||200.05||14,693.69||1.74%||22.99||4.12|
|South Ind Bk||17.30||3,130.75||2.60%||9.72||0.63|
|IDFC First Bank||54.55||26,086.07||0.95%||18.18||1.42|
WHAT’S DRIVING THE STOCK?
Robust Loan Growth
Before merger, IDFC First Bank has grown its credit almost entirely on the back of the corporate sector, which constitutes ~72% of its outstanding credit. The main rationale of IDFC Bank merger with Capital First is to increase the share of retail loan book. As of Q2 FY2019, Capital First has 89% of retail loan assets.
Retail Assets as a % of the total Funded Assets has improved substantially from 13% to 35% post the merger.
Management Guidance –
- The Bank plans to grow the retail asset book from Rs. 36,236 Cr to over Rs. 100,000 Cr
- The Bank plans to increase the retail book composition to more than 70% in the next 5-6 years.
- Being a high yielding segment, it will support NIM, going ahead.
Improvement in CASA ratio
As of December 31, 2018, the total deposits of the Bank stood at Rs. 61,914 Cr., up 28% from Rs. 48,356 Cr. in September 2018. Out of total deposits, low cost Current Account Savings Accounts Deposits (CASA) was at Rs 6,421 Cr, contributing 10.37% to the total deposits. The Bank aims to increase the CASA Ratio from 10.37% on a continuous basis year on year and strive to reach 30% CASA ratio within the next 5-6 years.
Strong Management Guidance – the Bank plans to reach the following goals in the next 5-6 years of operation:
- Loan Book – To reach Rs. 180,000 Cr.
- % Retail Exposure – 70% of the total loan book
- Net Interest Margin – To reach ~5.5%
- RoA% – To reach 1.4 – 1.6%
- RoE% – To reach 13 – 15%
Asset Quality – As of December 2018, IDFC First NPAs stood at 0.95%. Before the merger, IDFC Bank did provisions of nearly Rs 601.38 Cr. in Q2 FY 2019. In addition, the Bank as part of the clean-up, sold an additional Rs 2,400 Cr. of stressed assets (comprising exposure to several borrowers, including DS Group) to Edelweiss Asset Reconstruction Company for Rs 622.6 Cr.
WHAT’S DRAGGING THE STOCK?
Intense competition, threat of new entrants – Many of the services that were traditionally performed by the banks are now being performed by other players such as depositories, NBFCs and brokerage houses which have intensified competition in the banking industry.
Fintechs Disrupting Financial Service Market through innovative solutions across wide range of services such as payments, lending, data analytics, wealth management.
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