Increase in provisions pulls down IDFC's net profit by 14% in Q2

The board also approved the demerger of financial undertaking of IDFC into IDFC Bank

IDFC, the private sector infrastructure finance company, has posted a 14 per cent drop in net profit to Rs 421 crore for the second quarter of the current financial year, due to a sharp increase in provisioning and operating expenses.

Compared to the same period a year before, provisioning, including that for bad loans, went up 459 per cent to Rs 281 crore. Operating expenses went up 43 per cent to Rs 197 crore.

The net profit was marginally below Street estimates by four per cent, as a Bloomberg consensus estimate for the bank’s consolidated net profit was Rs 438.8 crore.

Operating income grew 24 per cent to Rs 1,101 crore. Net interest income fell six per cent to Rs 648 crore, while non-interest income expanded 127 per cent to Rs 449 crore. Net interest margin for the 12 months ending September 30 shrank to 3.8 per cent compared with four per cent a year before. Gross non-performing loans (NPLs) were 0.6 per cent of all advances as on September 30; net NPLs were 0.4 per cent.

IDFC reported a contraction in the loan book as it prepared to convert itself into a bank. The gross loan book as on end-September contracted two per cent over a year to Rs 54,851 crore. The net of restructured loans as on September 30 stood at 6.1 per cent of gross loans.

The capital adequacy was 25.9 per cent as on September 30, of which tier-I was 23.7 per cent.

The company raised Rs 1,000 crore from domestic investors through a Qualified Institutional Placement in September.

<b>Board approves demerger for IDFC Bank</b>

IDFC will transfer its financial business into a wholly owned step-down subsidiary, IDFC Bank. Existing shareholders will get one share of Rs 10 each for every one equity share of Rs 10 each held in IDFC.

On completion of the demerger, IDFC shareholders will hold 47 per cent stake in the bank and the balance 53 per cent by IDFC Financial Ltd, a 100 per cent subsidiary.

The board of directors approved a proposal to demerge its financing undertaking into its wholly owned step-down subsidiary IDFC Bank.

The shareholders of IDFC will continue to hold their shares in IDFC. The scheme would be effective upon receipt of all requisite approvals. The bank is slated to commence its operations from October 2015. IDFC is recruiting banking professionals and identifying the space for its branches and operations.