IDBI: Under pressure

Low margins and asset quality have been a drag on earnings

Its getting a tad tight for India’s fifth-largest commercial bank, IDBI. While major banks have managed a growth of more than three per cent in their net interest margins (NIM), IDBI recorded one of the lowest NIM in the June quarter, at around 1.6 per cent. Though, this is 84-basis-point more than that recorded in the same quarter of the previous year.

The June quarter saw some traction in the core fees, which grew 50 per cent, but the current account and savings account ratio was down 160 basis points sequentially to around 13 per cent, which is again the lowest amongst peers. Total income grew 170 per cent year-on-year, while net earnings rose 45 per cent to around Rs 25,000 crore. However, these were lower than estimates and largely helped by DTA credit that resulted in lower tax rate.

Asset quality has been a major cause for concern. Non-performing loans (NPL) increased 24 per cent sequentially during the quarter, while gross non-performing assets came in at around 1.9 per cent (1.2 per cent at the net level). According to analysts at Bank of America-Merrill Lynch, the reported cover was 39 per cent (around 74 per cent including technical write-offs). Bulk of the slippage came from restructured loans, wherein two large accounts of over Rs 100 crore each slipped, reckon analysts. Total restructured book stood at around seven per cent. Total distressed loans (NPLs and restructured) formed nine per cent of the loan book.

The bank’s Tier-I capital is at 6.7 per cent. The preference capital infusion by the government will take it to eight per cent. This will give the bank some headroom for further capital infusion. The cleaning up of books and the economic momentum will enhance the bank’s operations, as it plans to expand its base in the current financial year. Till then, the pressure is expected to persist.