IDFC First Bank sees net loss of Rs 630 cr in Q1 due to higher provisions

Private sector borrower IDFC First bank reported a net loss of Rs 630 crore in the April-June quarter of FY22 due to higher provisions due to Covid-19. In the same period last year, the lender had made a net profit of Rs 94 crore.

The lender’s net interest income (NII) increased by 25 percent year on year (on an annual basis) to Rs 2,185 crore and then increased by 11 percent. It reported the highest ever net interest margin (NIMs) of 5.51 percent, compared to 4.86 percent in the same period last year.

The bank has made additional provisions amounting to Rs 350 crore due to Covid in the reporting quarter, bringing the cumulative Covid-related provisions to Rs 725 crore as of June 30, 2021. In Q2 22, the lender made provisions amounting to Rs 1,879 crore, up 146 percent year on year and 212 percent sequentially.

“The bank believes the full estimated impact of Covid Wave 2 is now on the books,” it said in a statement.

The bank believes cash flow customers were indeed hit by lockdowns in the second wave of Covid, but a fair proportion of them are likely to repay their dues when the economy normalizes.

The quality of the bank’s assets has deteriorated both sequentially and year-on-year, pointing to the stress from covid. Gross NPAs rose to 4.61 percent, up 46 basis points (bps) sequentially and 262 bps year-on-year. Net NPAs rose sequentially to 46 basis points to 2.32 percent.

“Gross NPAs and Net NPAs include the impact of 84 bps and 71 bps respectively from one Mumbai-based infrastructure toll bill that fell during the quarter. Ultimately, the bank does not expect a material economic loss on this account as this is an operational toll road and only delayed. This was already part of the list of identified stressed assets released in previous periods,” the bank said in a statement.

With this account moving to NPA, the bank’s pool of stress assets reduced to Rs 1,371 crore as of the June quarter from Rs 3,195 crore in the same period last year, for which the bank maintains provisions of Rs 915 crore. In the March quarter, the stressed asset pool stood at Rs 2,264 crore.

The bank has also marked a telecom asset as stressed and has provided Rs 487 crore against an exposure of Rs 3,244 crore.

The lender’s restructured outstanding portfolio due to Covid in private loans amounted to 1.81 percent of the total portfolio of private loans as of June 30, 2021. The restructuring for the total portfolio amounted to 2.01 percent of the total assets financed.

The lender’s advance book shrank consecutively to Rs 1.13 trillion in the June quarter, compared to Rs 1.17 trillion. The sequential decline in total financed assets was primarily due to lower disbursements during the quarter as it was impacted by the second wave in April and May 2021. Total retail book disbursements in Q1FY22 were 53 percent of the disbursements in Q4FY21. However, the lender expects payouts to increase from Q2FY22.

Total customer deposits increased 36 percent to Rs 84,893 crore on June 30, 2021, compared to Rs 62,409 crore on June 30, 2020. The bank’s low-cost deposit ratio was 50.86 percent as of the June quarter, compared to up to 33.74 percent in the same period last year and 51.75 percent in the March quarter.

“….we have tentatively provisioned for the second wave of covid and expect provisions to decline for the remainder of the three quarters in FY22. We are guiding for reaching pre-covid gross and net NPA levels, with a targeted credit loss of just 2 percent on our retail book by Q4FY 22 and beyond, assuming no further lockdowns,” said V Vaidyanathan, MD & CEO, IDFC First Bank.

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