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IDBI Bank's shares jumped six per cent on Wednesday, even as the S&P BSE Sensex was flat, as the bank posted higher-than-expected net profit for the March quarter. Net profit grew 5.3 per cent over a year to Rs 546 crore, about 90 per cent higher than the Bloomberg consensus estimate of Rs 287 crore. This was despite the 43 per cent surge in provisioning to Rs 1,718 crore. While there are positives in the numbers, a closer look suggests it might be a little early to celebrate.
First, non-core items such as other income aided the bottom line. Other income (about 54 per cent of the total) grew a handsome 71 per cent to Rs 1,970 crore, boosted by higher treasury income, the sustainability of which is to be seen. Second, a low base of last year, when its net profit had fallen 6.5 per cent on a year-on-year basis, also helped.
Positively, the net interest income (NII) grew 5.4 per cent over a year to Rs 1,660 crore, higher than analysts' expectations, as well as the Rs 1,300-1,400 crore witnessed in recent quarters.
The bank also used the surge in treasury gains (other income) to raise provisioning, which enabled a sequential improvement in gross non-performing assets (NPA) and net NPA ratios.
Vaibhav Agrawal, vice president research - banking, Angel Broking, says, "IDBI Bank's NII was seven-eight per cent higher than our expectations. However, slippages continue to be high due to large and chunky accounts in the corporate loan book. Despite cheap valuations, the concern on slippage is much bigger."
Slippages indicate the fresh non-performing assets added in a period. Analysts estimate IDBI's slippages at Rs 2,000 crore, higher than Rs 1,600 crore in the December quarter and flat a year ago.
Agrawal says the IDBI capital adequacy is not the lowest but it will be a challenge for the bank to scale it up to meet Basel-III requirements.
A majority of analysts polled by Bloomberg since April remain neutral on the stock.
