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

The Economic Times - - Finance & Commodities - De­vangi.Gandhi @times­group.com

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

NPA WOES

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.

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