Release Date: July 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- IDFC First Bank Ltd (BOM:539437, Financial) reported a significant growth in deposits, reaching INR2 lakh crores, marking a 38% YoY increase.
- Retail deposits grew by 44% from June '23 to June '24, showcasing strong customer trust and engagement.
- The bank's CASA ratio remains robust at 46.6%, with CASA deposits growing by 36% YoY.
- The bank has successfully repaid legacy borrowings and certificates of deposits worth INR65,000 crores since the merger.
- The credit deposit ratio has improved, with the incremental credit deposit ratio from June '23 to June '24 at 72.1%.
Negative Points
- Credit costs have increased this quarter, primarily due to the impact on the Joint Liability Group (JLG) portfolio, which saw a rise in delinquencies due to floods in Tamil Nadu.
- The cost-to-income ratio remains high at 70.45%, although it has decreased from the previous quarter's 73.15%.
- The bank's gross NPA stood at 1.9%, with net NPAs at 0.59%, indicating some asset quality concerns.
- Operating expenses increased by 21% YoY, which could impact profitability if not managed effectively.
- Provisions for the quarter were higher at INR994 crores, a 38% increase sequentially, driven by the JLG portfolio's performance.
Q & A Highlights
Q: The industry has seen a bit of NPAs in the unsecured piece, and we are one of the significant players. What is the reading from the early indicators? Is there any geography concentration? And is this driven more by the early age group of borrowers?
A: Our unsecured retail is 15% of the book, which is a key focus area for the bank. We are seeing that it is varying broadly normally, allowing us to stick to our credit guidance of 1.65% overall at the bank level. No material movement at this point of time. However, we do see a definitive age pattern where younger borrowers (20-30) have relatively higher delinquency compared to older age groups.
Q: Any impact assessment on the LCR from the recent guidelines? And as you mentioned in the opening remarks that our deposit raising intensity moves down and also the resultant cost to income. Any thoughts on this?
A: We feel confident because deposits are coming in very strongly. We have lines available in the form of refinance, certificate of deposits, and FX borrowings. Incrementally, there would be some additional ask, but our deposit machinery is strong enough to mobilize additional deposits.
Q: You had guided for a cost-to-income to be stable at 72% for Q1 and Q2, and then start dropping off and break the 70s by Q4. This quarter, the cost to income is at 70.5%. How does the trajectory look like for the coming quarters of this year?
A: We expect to grow OpEx only by 20% this year, down from 33% last year. Income should grow by 23-24%, which will open the jaw. Therefore, you should expect a reduction in cost-to-income ratio. The picture for 2027 should give you a better glide path.
Q: With the increased equity capital base and increased JLG provisioning, do you believe you can still achieve the ROE guidance by Q4 of this year? If not, what ROE number can we look at by Q4 of this year?
A: It looks difficult due to the increased capital and extra provision from the microfinance book. We estimate an ROA of 1.4% by 2027, with profits being more back-ended this year due to the JLG impact.
Q: On the merger consummation with IDFC Limited, when can we expect that? Does it have any net worth accrual benefits?
A: The merger is expected to be concluded by the end of Q2, around the end of September. It will have a net worth accrual benefit of about INR500 crores to INR600 crores.
Q: Have we taken some portfolio actions and tightened underwriting in our retail business other than JLG because we are guiding for unchanged credit cost?
A: Yes, we have taken several policy interventions, such as tightening CIBIL leverage, cutting the lower end of the customer base, and excluding certain pin codes. We have also shut down the BNPL product due to higher delinquency.
Q: What is the difference in terms of ticket size, cost of acquisition, customer segment, and sourcing between digital personal loans and consumer durable loans?
A: Consumer durable loans are typically offline purchases with representatives at stores, while digital consumer durable loans are online purchases. The average ticket size for consumer durables is around INR50,000 to INR60,000. Digital personal loans are offered to existing savings account customers based on their salary credits and account balances.
Q: Can you share the SMA1 and SMA2 numbers for consumer loans and credit cards?
A: We generally don't give out product-specific numbers, but we can provide some of these numbers offline.
Q: On the cost-to-income ratio, the FY27 guidance is 65%. Why is it still higher than the exit cost-to-income ratio of Capital First, which was around 48%?
A: The bank started with a high cost-to-income ratio of 95%, and moving from 95% to 72% in five years has been very challenging. The 65% target for FY27 is a significant improvement, considering the investments in branches, ATMs, people, and technology.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
