IDBI Bank Q3 Show Disappoints on Several Counts
Stock likely to take a hit after .₹ 2,255-crore net loss; asset quality issues may continue to weigh on earnings outlook
ET Intelligence Group: The IDBI Bank stock, which rose a stellar 43% in the past one year, could be in for some bad times, given the public sector bank’s disappointing show in the December 2016 quarter, in which it reported a net loss of ₹ 2,255 crore.
While asset quality issues will continue to weigh on earnings outlook, a more than 45% decline in net interest income (NII), or the core banking income, for the December 2016 quarter is a worrying sign for the bank.
In the wake of demonetisation, the bank was expected to report underwhelming credit growth. However, the NII contraction for IDBI Bank appears quite severe compared with PNB, which after reporting a 2% YoY decline in total advances, reported a 9.5% drop in NII for the December quarter.
IDBI Bank, on the other hand, has reported a 4% growth in its loan book during the quarter. In a quarter when most banks were expected to focus on the retail loans segment, a 4% growth in home loans portfolio is disappointing for IDBI Bank, given that the bank has managed to expand corporate advances by 5%.
Despite posting a strong 44% growth in CASA deposits, a more
More worrying is the industry level jump in GNPA ratio to 11.3% in the December quarter from 9.73% in the previous quarter. This indicates that, going ahead, provisions for bad assets, which increased 37% YoY for IDBI, will continue to remain high and in turn keep profitability and capital adequacy profile under pressure. The capital adequacy ratio of IDBI Bank has deteriorated by 35 bps from the previous quarter to11.29%, which is bad news given that the government plans to infuse only ₹ 10,000 crore into PSU banks in FY18, and may link it to operational and financial performance.
It would also be interesting to see how the dismal performance would affect the government’s privatisation plan for the bank.