IDFC First Bank 2020 Annual Report Takeaways –

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IDFC First Bank: Building a strong foundation 

  • Retail assets contribution to overall funded assets stood at 61% as of March 31, 2020.
  • Raised Rs 2,000 crs of fresh equity capital through preferential allotment to marquee investors during the first quarter of FY21. Post which, the total capital adequacy ratio of the Bank has improved to around 15%.
    • Reason: No one knew the extent of credit losses due to Covid. 
    • Positive: saved Rs 30 crs by not hiring any investment bankers.
  • 464 branches as of Mar, 2020: surged to 541 branches acco. to the latest RBI doc.
  • Business model: High-margin loan business of Capital First (NIM of 8.5%) would be placed atop the low cost liabilities franchise of IDFC Bank.
    • Predominantly, a retail bank with strong corporate banking services.
  • The year was full of taking provisions against stressed legacy assets. The bank didn’t have enough pre provisioning losses to cover these provisions: resulted in a Rs 2864 crs loss for the year.
  • Retail deposits are up 157% YoY, from Rs 13,214 crs to Rs 33,924 crs. (CASA ratio from 11.40% to 31.87% in a year)
    • To enhance the Bank’s deposit suite further, customer-centric products were launched like FD Multiplier, FD Health Secure, Health First Savings account during FY20, as value-adds to the portfolio.
    • These retail deposits were used to replace Certificate of Deposits which is relatively more volatile subject to market conditions.
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  • Retail loan book was up 40% YoY, from Rs 40,812 crs to Rs 57,310 crs. NPAs not an issue as of now.
    • 90 lakhs customer base.
    • PL book grew 35%, Consumer loans grew 21% & 2W loans grew 28%.
  • Funding of retail loan books which increased by 16498 crs was through reduction in wholesale assets.
  • Why is Infrastructure lending a gruesome business? 
    • Low margins & Prone to execution risks, political risks & project completion risks.
    • Reduced Infrastructure loan book from 71.2% of book to 13.9% currently (Target: Take it to zero in a few years)
  • Q4FY20 NIM of 4.24% which should increase to 5% going forward.
  • Mr Vaidyanathan talks about the bank culture: 
  • Covid commentary: 
    • Consumption businesses like personal credit, two wheelers etc. have already picked up to about 50-70% of pre-COVID-19 volumes, where ever lockdown is lifted. 
    • Demand in SME lending is still low, say 20% of pre-COVID-19 levels. Might have lost about one year of book growth.
  • Why does 7% savings rate makes sense for the bank:
  • Target ROE: 16-18% in a few years. 
  • Accepts that a lot more improvements are needed on the customer experience front: A sign of integrity.
  • Latest innovations by the bank:
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  • With a view to ensuring customers’ financial well-being, the Bank enabled access to good quality wealth management solutions to all segments of customers – starting from high net worth individuals and businesses to middle and lower income groups as well: If a partner makes money with you, he’ll return.
  • The Bank offers secured working capital facilities under the Kisan Credit Card (KCC) scheme to customers/ farmers involved in agricultural activities.
  • MD  has voluntarily offered to take a pay cut of 30% in his compensation including Fixed compensation as well as all allowances while the other key management has taken a 10% cut.
    • The Bank also paid 100% of the variable pay to 78.2% of employees for the period pertaining to FY 19-20.
    • For the rest 21.8% of the employees at senior level, the variable pay was cut progressively as the seniority increased, such that the variable pay cut for MD and CXO was 65% of the eligible amount.
  • 20,222 permanent employees: Average percentile increase in remuneration is 11-13% for the year.
  • MD holds 2.75% stake in the bank (skin in the game).
  • Board with strong core skills:
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