IDBI Bank swings to profit on lower provisions, improved asset quality

The Reserve Bank of India (RBI) had earlier allowed restructuring of personal and corporate loans impacted by Covid-19, with strict boundaries.

Life Insurance Corporation (LIC)-owned IDBI Bank on Friday reported a net profit of Rs 324 crore in the September quarter (Q2FY21) due to lower provisions and improved asset quality. The lender had earlier reported a net loss of Rs 3,459 crore in the corresponding quarter last year. Its operating profit during September quarter improved by 23% year-on-year (y-o-y) to Rs 1,246 crore, as against Rs 1,009 crore in September 2019. Total provisions have come down 89.7% y-o-y to Rs 581 crore in Q2FY21, compared to Rs 5,641 crore provided in the year-ago period.

“The bank has, as a prudent measure, made a provision of Rs 270 crore towards the expected provisioning requirement for cases to be restructured under the resolution framework,” lender said in a release. The Reserve Bank of India (RBI) had earlier allowed restructuring of personal and corporate loans impacted by Covid-19, with strict boundaries. The provision coverage ratio (PCR) of the bank stood at 95.96% as on September 30, 2020.

The lender’s net interest income (NII) grew 3.9% y-o-y to Rs 1,695 crore. Similarly, net interest margin (NIM) improved to 2.7% in Q2FY21, showing y-o-y growth of 37 basis points (bps). The asset quality of the bank showed improvement in the September quarter. The gross non-performing assets (NPAs) improved 173 bps to 25.08%, compared to 26.81% in the previous quarter. Similarly, net NPAs came down 88 bps to 2.67% from 3.55% in the June quarter.

“Pursuant to the Supreme Court (SC)’s interim order dated September 3, 2020, in the public interest litigation (PIL) case of Gajendra Sharma vs Union Bank of India & Anr, the bank has not classified any borrower account as NPA, which has not been classified as NPA as on August 31, 2020,” the lender said. The apex court had earlier directed banks not to recognise fresh NPAs, till further orders in the interest on interest case. A PIL was earlier filed in the SC to waive off interest for borrowers during the moratorium period between March and August this year.

“If the bank had classified borrower accounts as NPA after August 31, 2020, the bank’s proforma gross NPA ratio and proforma Net NPA ratio would have been 25.20% and 2.81%, respectively, ” the lender further said.

The share of current account and savings account (CASA) in total deposits improved to 48.33%, showing an improvement of 346 bps y-o-y. Overall, CASA increased to Rs 1,08,217 crore as on September 30, 2020, compared to Rs 1,04,027 crore as on September 30, 2019. The cost of deposits improved by 76 bps to 4.41% in Q2FY21, compared to 5.17% in Q2FY20. The cost to net income ratio has improved to 54.96% in Q2FY21 from 62.11% in Q2FY20. The capital adequacy ratio of the bank improved to 13.67% from 11.98% in the year-ago period.

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