IDFC to make additional provisioning of Rs 2,500 cr; will impact net

Its net worth will reduce by approximately Rs 1,600 crore

In the run-up to becoming a bank, infrastructure finance company IDFC has decided to set aside an additional Rs 2,500 crore for provisioning in the July-September quarter on account of stressed loans.

“This additional provision will be made for stressed assets relating to the gas and power sector. Even though the existing provisions are enough, we want to make sure there is no overhang of risk. However, we don’t expect incremental problems to crop up,” said Vikram Limaye, managing director, IDFC.

Stressed assets, which include restructured book, non performing assets and security receipts, stand at 8.4 per cent of the overall loan book. Limaye added the amount of stressed asset is fixed at Rs 8,000-8,500 crore and it is unlikely to change in the coming quarters.

IDFC, which received a universal banking licence from the Reserve Bank of India (RBI) last year, will start banking operations from October 1. It received in-principle approval for operations in April 2014 and obtained the final approval last week.

The company posted a 46.4 per cent drop in its standalone net profit for the quarter ended June 30, 2015 owing to an increase in total expenses and a lower other income. It posted a net profit of Rs 241 crore in the first quarter, compared to Rs 449 crore in the year-ago period. Its consolidated net profit was down 47 per cent to Rs 254 crore in the quarter under review.

There was some pressure on asset quality with the per cent of gross non-performing assets (NPA) to gross advances increasing to 1.52 per cent in the first quarter from 0.64 per cent in the June quarter a year ago. In the same period, the per cent of NPA to net advances also rose to 0.99 per cent from 0.43 per cent.

“The gross non-performing loans have gone up as one coal block allocated was cancelled. The exposure to this asset is Rs 300-350 crore,” said Limaye.

However, provisions and contingencies declined to Rs 62 crore at the end of quarter ended June, compared to Rs 202 crore a year ago.

Limaye added that even after providing for the additional provisions, IDFC will remain well capitalised and the Tier-I capital will be above 15 per cent. The capital adequacy ratio of IDFC stood at 24 per cent at the end of quarter ended June.