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IDBI
Aiming for a turnaround
Event
IDBI Bank is one of India’s largest scheduled commercial banks. IDBI started
its journey as a development financial institution before converting into a bank
in 2003. The bank provides the entire gamut of financial services to both
corporate and retail customers.
Impact
New management – new initiatives: Under the new CMD Mr Malla, the bank
has decided to go on a slow and steady growth path while focussing on
improving profitability. Chief among them are:
FY11 is to be the year of consolidation. Accordingly loan growth may be
slow and the bank would like to boost its margins.
Growing CASA through developing its branch network, retraining its
employees, launching new initiatives like a savings account charge
waiver and leveraging its technology to get both CA and SA.
Focussing on increased lending to retail and small and medium
enterprises where the bank can get higher yields.
Close monitoring of asset quality as this has been one of the areas of
concern at the bank.
Continuing to focus on infrastructure lending, which has been the bank’s
key competency with project advisory/loan syndication bringing in good
fee income.
Provisioning continues to be a concern. In 3Q11 credit costs continue to
be very high at 2.9% of loans. The bank had Rs6.7bn of new delinquencies,
signalling continued asset quality issues.
Investment book. The bank has significant investments in SIDBI, ARCIL,
NSE, CCIL, NSDL and CCIL. While these stakes are substantial,
management is not actively looking to monetise those at present.
Action and recommendation
We believe that while the initial incremental improvements may be easier to
achieve, the task to bring return ratios on par with peers is likely to be a longwinded
one. We believe valuations have run ahead of fundamentals for the
stock.
IDBI Bank Aide Memoire
1. What is your outlook on margins?
2. What percentage of wholesale deposits is in total deposits? What are your targets for increasing CA and SA at the bank?
What is the CASA ratio that you think is realistic in the next 2-3 years?
3. How will you garner more savings deposits in the face of fierce competition from other banks? While the charge waiver is a
good strategy to attract new accounts, how will you address the increase in balance in the existing accounts?
4. What is your outlook on the liquidity tightness? Do you think it will ease in the next 2-3 months? What deposit growth do
you see for the system at large?
5. Loan growth has been sluggish in 9M11. What is your loan growth target for FY11 and beyond? Are you seeing a
broadbasing of corporate lending?
6. How are you retraining the staff to focus on more retail/branch-oriented banking (lending/deposit taking) versus the more
corporate-focussed banking presently?
7. Fees had shown good traction in FY10 over a low base before slowing in 9M11. How will you sustain fee growth going
forward on a higher base?
8. How is the restructured portfolio behaving? What is the proportion of restructured loans you expect to turn into NPL?
9. How much additional provisioning do you expect on the investment book?
10. What are the additional steps that you are taking to monitor asset quality?
11. What is your view on monetising the unrealised gains on your investment book?
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IDBI
Aiming for a turnaround
Event
IDBI Bank is one of India’s largest scheduled commercial banks. IDBI started
its journey as a development financial institution before converting into a bank
in 2003. The bank provides the entire gamut of financial services to both
corporate and retail customers.
Impact
New management – new initiatives: Under the new CMD Mr Malla, the bank
has decided to go on a slow and steady growth path while focussing on
improving profitability. Chief among them are:
FY11 is to be the year of consolidation. Accordingly loan growth may be
slow and the bank would like to boost its margins.
Growing CASA through developing its branch network, retraining its
employees, launching new initiatives like a savings account charge
waiver and leveraging its technology to get both CA and SA.
Focussing on increased lending to retail and small and medium
enterprises where the bank can get higher yields.
Close monitoring of asset quality as this has been one of the areas of
concern at the bank.
Continuing to focus on infrastructure lending, which has been the bank’s
key competency with project advisory/loan syndication bringing in good
fee income.
Provisioning continues to be a concern. In 3Q11 credit costs continue to
be very high at 2.9% of loans. The bank had Rs6.7bn of new delinquencies,
signalling continued asset quality issues.
Investment book. The bank has significant investments in SIDBI, ARCIL,
NSE, CCIL, NSDL and CCIL. While these stakes are substantial,
management is not actively looking to monetise those at present.
Action and recommendation
We believe that while the initial incremental improvements may be easier to
achieve, the task to bring return ratios on par with peers is likely to be a longwinded
one. We believe valuations have run ahead of fundamentals for the
stock.
IDBI Bank Aide Memoire
1. What is your outlook on margins?
2. What percentage of wholesale deposits is in total deposits? What are your targets for increasing CA and SA at the bank?
What is the CASA ratio that you think is realistic in the next 2-3 years?
3. How will you garner more savings deposits in the face of fierce competition from other banks? While the charge waiver is a
good strategy to attract new accounts, how will you address the increase in balance in the existing accounts?
4. What is your outlook on the liquidity tightness? Do you think it will ease in the next 2-3 months? What deposit growth do
you see for the system at large?
5. Loan growth has been sluggish in 9M11. What is your loan growth target for FY11 and beyond? Are you seeing a
broadbasing of corporate lending?
6. How are you retraining the staff to focus on more retail/branch-oriented banking (lending/deposit taking) versus the more
corporate-focussed banking presently?
7. Fees had shown good traction in FY10 over a low base before slowing in 9M11. How will you sustain fee growth going
forward on a higher base?
8. How is the restructured portfolio behaving? What is the proportion of restructured loans you expect to turn into NPL?
9. How much additional provisioning do you expect on the investment book?
10. What are the additional steps that you are taking to monitor asset quality?
11. What is your view on monetising the unrealised gains on your investment book?
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