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Management meeting
ƒ IDBI's management driving focus on CASA and profitability
ƒ Targeting calibrated loan growth with higher share of retail
ƒ Young workforce drives lower opex ratio, higher efficiency
ƒ Trading at 0.85x consensus FY12 ABV
We met top management of IDBI Bank
(IDBI), a mid sized public sector bank with
816 branches and a loan book of US35b
as of March 2011. We present the key
highlights of our discussion.
Multi-pronged transformation
IDBI’s top management team under the
stewardship of RM Malla, who joined in
July 2010, has been targeting a strategic
transformation over the last few quarters.
1) IDBI says its focus on CASA deposits
through branch network expansion, better
service, and schemes such as waiver of transaction charges has helped
improve the CASA ratio to 21% for FY11 from 15% in FY10. The bank is
guiding toward improving the ratio to 24-25% by March 2012 and 30% by
March 2013. 2) IDBI says it has calibrated its loan book growth toward
improving net interest margins (through less reliance on wholesale
funding) and toward increased priority sector compliance. IDBI expects
15-18% loan book growth for FY12 and NIM of 2.2-2.3%, while it expects
priority sector loans to meet the RBI’s requirement by FY13. 3) IDBI is
aiming to change its loan book mix toward a retail share of 40-50% (19%
at March 2011) in the next 3-4 years, and a higher proportion of SME
loans. The bank expects 30-40% growth in SME and retail portfolio over
FY12-13. The recent merger of IDBI’s home finance subsidiary into the
bank will help consolidate its mortgage market share, according to
management. 4) IDBI has increased its focus on risk management,
moving away from big-ticket exposures and diversifying its loan portfolio.
IDBI is aiming for 80-90bp ROA by FY12 and at least 1% ROA by FY13.
Younger workforce driving change, says IDBI
IDBI says its young workforce (average age of 31 years) has helped in
seamless redeployment of the resource from the asset to the liability
side. This helped contain the opex ratio at 35% for FY11 despite addition
of over 300 branches since March 2009, according to management. The
bank also expects no negative surprises on the pension and gratuity
fronts, as it says it has fully provided for foreseeable liabilities. IDBI
claims its CASA/branch and loans/employee ratios are INR460m and
INR115m, respectively, compared to PSU banks’ averages of INR250m-
300m and INR45m-50m.
Valuation
IDBI Bank currently trades at 0.85x FY12 ABV for FY12 ROE of 16%,
based on Bloomberg consensuses estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Management meeting
ƒ IDBI's management driving focus on CASA and profitability
ƒ Targeting calibrated loan growth with higher share of retail
ƒ Young workforce drives lower opex ratio, higher efficiency
ƒ Trading at 0.85x consensus FY12 ABV
We met top management of IDBI Bank
(IDBI), a mid sized public sector bank with
816 branches and a loan book of US35b
as of March 2011. We present the key
highlights of our discussion.
Multi-pronged transformation
IDBI’s top management team under the
stewardship of RM Malla, who joined in
July 2010, has been targeting a strategic
transformation over the last few quarters.
1) IDBI says its focus on CASA deposits
through branch network expansion, better
service, and schemes such as waiver of transaction charges has helped
improve the CASA ratio to 21% for FY11 from 15% in FY10. The bank is
guiding toward improving the ratio to 24-25% by March 2012 and 30% by
March 2013. 2) IDBI says it has calibrated its loan book growth toward
improving net interest margins (through less reliance on wholesale
funding) and toward increased priority sector compliance. IDBI expects
15-18% loan book growth for FY12 and NIM of 2.2-2.3%, while it expects
priority sector loans to meet the RBI’s requirement by FY13. 3) IDBI is
aiming to change its loan book mix toward a retail share of 40-50% (19%
at March 2011) in the next 3-4 years, and a higher proportion of SME
loans. The bank expects 30-40% growth in SME and retail portfolio over
FY12-13. The recent merger of IDBI’s home finance subsidiary into the
bank will help consolidate its mortgage market share, according to
management. 4) IDBI has increased its focus on risk management,
moving away from big-ticket exposures and diversifying its loan portfolio.
IDBI is aiming for 80-90bp ROA by FY12 and at least 1% ROA by FY13.
Younger workforce driving change, says IDBI
IDBI says its young workforce (average age of 31 years) has helped in
seamless redeployment of the resource from the asset to the liability
side. This helped contain the opex ratio at 35% for FY11 despite addition
of over 300 branches since March 2009, according to management. The
bank also expects no negative surprises on the pension and gratuity
fronts, as it says it has fully provided for foreseeable liabilities. IDBI
claims its CASA/branch and loans/employee ratios are INR460m and
INR115m, respectively, compared to PSU banks’ averages of INR250m-
300m and INR45m-50m.
Valuation
IDBI Bank currently trades at 0.85x FY12 ABV for FY12 ROE of 16%,
based on Bloomberg consensuses estimates.
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