Private sector lender IDFC Bank, which on Wednesday announced its first quarterly earnings after listing on the bourses, has reported a net profit of Rs 242.2 crore in the October-December quarter.
Net interest income, the difference between interest earned and interest expended, for the quarter stood at Rs 404.2 crore. Other income for the quarter ended December stood at Rs 200 crore. Rajiv Lall, executive vice-chairman and managing director, said the lender would be focusing on growing its other income.
During the third quarter of this financial year, gross non-performing assets (NPAs) of the bank was 3.1 per cent while the net NPAs was one per cent at the end of the quarter. In absolute terms, gross NPA was Rs 1,462.25 crore while net NPA was Rs 453.41 crore.
The NPAs had come on the books of the banks after its demerger with parent IDFC. After the demerger, net assets of Rs 6,234.56 crore were transferred from IDFC Ltd to the newly formed entity on October 1. In order to account for the stressed assets, which account for almost 15 per cent of the total assets, the bank has provided for Rs 4,500 crore at the time of the formation of the bank.
“Asset quality has been stable and it hasn’t grown. The provisions that we had made at the start of the quarter has been adequate and we don’t require to make any more provisions at the moment. In absolute terms, the gross NPL (non-performing loan) is bound to increase in the next 6-12 months but it will not affect earnings or balance sheet or require us to increase provisioning,” Lall said.
The bank’s net interest margin stood at two per cent. The management explained that the overall margins have been under pressure because of large investments made by the bank, specifically in the treasury division.
Going ahead, the bank is looking at building its retail book by launching a mortgage financing product in the next two quarters. The retail banking vertical of the bank has been launched form the January quarter. The book size of Bharat Banking, the rural business, stood at Rs 54 crore at the end of the December quarter and the lender is looking to scale this up in the coming quarters.
However, wholesale banking continues to and would remain the largest revenue generator for the bank even in the coming months, the management said. Within this vertical, the lender had been trying to focus on other sectors apart from infrastructure which forms a majority share of the balance sheet. The management said the non-infra business had started but it was yet to occupy a meaningful share in the balance sheet.
One big challenge that remained for the lender was meeting priority sector lending (PSL) norms. According to Reserve Bank of India guidelines, banks are required to extend 40 per cent of their loans for the priority sector. “Given our large balance sheet size, the task of meeting PSL norms is tough. However, we are trying to achieve it via lending organically through our Bharat Banking. The mortgage financing that we are looking at introducing will also play a role. We all lend to small and medium businesses but all of this put together will be able to make only 15-20 per cent of the total requirement. Rest will have to be bought out,” said Sunil Kakkar, chief financial officer, IDFC Bank.