IDFC First Bank sees net loss of Rs 630 cr in Q1 due to higher provisions

Net interest income of the lender grew by 25% YoY to Rs 2,185 cr and sequentially it increased by 11%

Private sector lender IDFC First bank reported a net loss of Rs 630 crore in the April-June quarter of FY22 due to higher provisions because of Covid-19. In the same period last year, the lender had earned net profit of Rs 94 crore.

Net interest income (NII) of the lender grew by 25 per cent year-on-year (YoY) to Rs 2,185 crore and sequentially it increased by 11 per cent. It has reported the highest ever net interest margin (NIMs) at 5.51 per cent as compared to 4.86 per cent in the same period last year. 

The bank made additional provisions to the tune of Rs 350 crore in the reporting quarter on account of Covid, taking its cumulative Covid-related provisions to Rs 725 crore as of June 30, 2021. In Q1FY22, the lender made provisions to the tune of Rs 1,879 crore, up 146 per cent YoY and 212 per cent sequentially. 

“The bank believes that the full estimated impact of covid wave 2 is now provided for in the books," it said in a statement. 

The bank is of the opinion cash flow customers did get impacted due to lockdowns in the second Covid wave but a reasonable proportion among them are likely to pay back their dues when the economy normalises.

Asset quality of the bank has deteriorated both sequentially and YoY, indicating the stress due to covid. Gross NPAs rose to 4.61 per cent, up 46 basis points (bps) sequentially and 262 bps on a YoY basis. Net NPAs rose to 46 bps sequentially to 2.32 per cent. 

“Gross NPAs and net NPAs include the impact of 84 bps and 71 bps respectively on account of one Mumbai-based infra toll account which slipped during the quarter. The bank expects no material economic loss in this account eventually as this is an operating toll road and is only delayed. This was already part of the identified stressed asset list disclosed in the previous periods," the bank said in a statement. 

With this account moving to NPA, the stress assets pool of the bank reduced to Rs 1,371 crore as of June quarter from Rs 3,195 crore in the same period last year, for which the bank holds provisions of Rs 915 crore. In the March quarter, its stressed asset pool stood at Rs 2,264 crore.

The bank has also marked a telecom asset as stressed and has provided Rs 487 crore as against exposure of Rs 3,244 crore. 

The lender’s restructured outstanding portfolio due to covid in retail loans was 1.81 per cent of the overall retail loan book as of June 30, 2021. Restructuring for the overall portfolio stood at 2.01 per cent of the total funded assets.

Advances book of the lender shrunk sequentially to Rs 1.13 trillion in the June quarter compared to Rs 1.17 trillion. The sequential reduction in the overall funded asset was primarily due to lower disbursals during the quarter as it was impacted by the second wave during April and May 2021. The overall retail book disbursals in Q1FY22 were 53 per cent of the disbursals done in Q4FY21. However, the lender expects disbursements to pick up from Q2FY22 onwards.

The total customer deposits increased by 36 per cent to Rs 84,893 crore as of June 30, 2021, compared to Rs 62,409 crore as of June 30, 2020. The low cost deposit ratio of the bank was at 50.86 per cent as of June quarter compared to 33.74 per cent in the same period last year and 51.75 per cent as of March quarter. 

“....we have made prudent provisions for covid second wave, and expect provisions to reduce for the rest of the three quarters in the FY22. We guide for achieving pre covid level gross and net NPA, with targeted credit loss of only 2 per cent on our retail book by Q4FY 22 and onwards, assuming no further lockdowns,” said V Vaidyanathan, MD & CEO, IDFC First Bank.