Business environment during the fiscal continued to remain challenging
with inflationary headwinds forcing regulators across the world to raise interest rates
and tighten liquidity and geopolitical tensions further exacerbating challenges by
disrupting supply chains and constraining availability of resources globally. During the
fiscal India navigated these challenges well and in the coming years, with abatement of
these macro headwinds hopefully, the India growth story should gain further momentum and
be back on track.
IDFC LIMITED
Current Status
Post demerger of Financing Undertaking into IDFC FIRST Bank Limited
("IDFC FIRST Bank" or "the Bank"), IDFC Limited ("IDFC") is
registered with the Reserve Bank of India as an NBFC - I. It has minimal business
operations and it holds investments in IDFC FIRST Bank through its wholly owned subsidiary
IDFC Financial Holding Company Limited ("IDFC FHCL" or "IDFC NOHFC").
IDFC FHCL owns 39.99% in IDFC FIRST Bank. IDFC and IDFC FIRST Bank are two listed entities
of IDFC Group. IDFC does not have any business operations.
During the year, Balance Sheet size increased from Rs. 9,416.45 crore
as on March 31, 2022 to Rs. 9,570.54 crore as on March 31, 2023. Profit after tax and
other comprehensive income was higher at Rs. 2,029.29 crore for FY 2022-23 as compared to
Rs. 53.88 crore in FY 2021-22. Net worth of the Company increased from Rs. 9,391.06 crore
as on March 31, 2022 to Rs. 9,518.93 crore as on March 31, 2023.
CORPORATE SIMPLIFICATION AND CREATING VALUE FOR SHAREHOLDERS
Our corporate structure in the beginning of the fiscal was as given on
the next page:
In continuation of our journey of simplifying corporate structure,
following steps were taken during the year:
? Divestment of IDFC Foundation along with i.e. Delhi Integrated
Multi-Modal Transit System Limited ("DIMTS") & Infrastructure Development
Corporation (Karnataka) Limited ("IDeCK").
? Merger of three wholly owned subsidiaries i.e. IDFC Alternatives
Limited, IDFC Projects Limited and IDFC Trustee Company Limited with IDFC Limited
completed during the year.
? Sale of IDFC Asset Management Company ("IDFC AMC") and IDFC
AMC Trustee Company to Bandhan Consortium.
? Subscribed to Preferential offer made by the Bank to increase IDFC
holding in Bank to 39.99%.
? Special dividend to IDFC shareholders at Rs.11/- per share and same
was paid in February 2023.
? Interim dividend to IDFC Shareholders at Re. 1/- per share and same
was paid in May 2022.
? The simplified corporate structure is given in the last column on
this page.
As the last step of the journey, the Board of Directors of IDFC, IDFC
FHCL and IDFC FIRST Bank at their respective meetings held on July 03, 2023, have
interalia approved Composite Scheme of Amalgamation ("the Scheme") which
inter alia envisages the amalgamation of: (i) IDFC FHCL into and with IDFC; and (ii) IDFC
into IDFC FIRST Bank, and their respective shareholders, under Sections 230 to 232 of the
Act and other applicable laws including the rules and regulations ("Proposed
Transaction"). subject to statutory and regulatory approvals.
OVERVIEW OF GROUP COMPANY
IDFC FIRST Bank
Key Highlights of FY2022-23
Our bank was focused on creating a strong platform during the initial
years by consolidating and strengthening the balance sheet through growing assets at a
calibrated pace and hastening deposit growth. We moderated overall loan growth during
initial years and grew deposits as a faster pace. This phase focused on consolidation is
now complete. A strong foundation has been built to launch into a growth phase focused on
profitability and asset quality from here on.
Financials
Our fee income is well diversified. We have launched and scaled up many
fee-based products in the last 4 years. Many of these products are in the early stage of
their lifecycle and have the potential to grow significantly going forward. 91% of the fee
income & other income is from retail banking operations which is granular and
sustainable.
IDFC FIRST Bank: Balance Sheet
| In Rs. Crore |
Mar-22 |
Dec-22 |
Mar-23 |
Growth (%) M (YoY) ¦ |
| Shareholders Funds |
21,003 |
22,698 |
25,721 |
22% |
| Deposits |
1,05,634 |
1,33,038 |
1,44,637 |
37% |
| - CASA Deposits |
51,170 |
66,498 |
71,983 |
41% |
| - Term Deposits |
54,464 |
66,540 |
72,655 |
33% |
| Borrowings |
52,963 |
54,406 |
57,212 |
8% |
| Other liabilities and provisions |
10,581 |
11,232 |
12,371 |
17% |
| Total Liabilities |
1,90,182 |
2,21,374 |
2,39,942 |
26% |
| Cash and Balances with Banks and RBI |
15,758 |
12,319 |
13,898 |
-12% |
| Net Retail and Wholesale Loans & Advances* |
1,24,075 |
1,47,109 |
1,56,371 |
26% |
| Investments |
41,544 |
51,016 |
57,809 |
39% |
| Fixed Assets |
1,361 |
1,902 |
2,090 |
54% |
| Other Assets |
7,443 |
9,028 |
9,773 |
31% |
| Total Assets |
1,90,182 |
2,21,374 |
2,39,942 |
26% |
IDFC FIRST Bank: Profit & Loss Account
|
FY22 |
FY23 |
Growth (%) YoY |
| Interest Income |
17,173 |
22,728 |
32% |
| Interest Expense |
7,467 |
10,092 |
35% |
| Net Interest Income |
9,706 |
12,635 |
30% |
| Fee & Other Income |
2,691 |
4,142 |
54% |
| Trading Gain |
531 |
325 |
-39% |
| Operating Income |
12,928 |
17,102 |
32% |
| Operating Income (Excl Trading Gain) |
12,397 |
16,777 |
35% |
| Operating Expense |
9,644 |
12,170 |
26% |
| Operating Profit (PPOP) |
3,284 |
4,932 |
50% |
| Operating Profit (Ex. Trading gain) |
2,753 |
4,607 |
67% |
| Provisions |
3,109 |
1,665 |
-46% |
| Profit Before Tax |
175 |
3,267 |
=RIGHT>1765% |
| Tax |
30 |
830 |
2697% |
|
145 |
2,437 |
1575% |
During the last three years we had to make significant investments in
building liabilities and credit card franchise Despite this, the cost income issue has
come down from 95% to 72% because of the strong incremental unit economics at the bank
which is allowing the bank to make the investments as mentioned above. If the high cost
legacy borrowings are replaced with current cost of funds, the cost to income for FY23
would be 69.68%. Cost to income will further come down with scale.
Our core pre-provisioning operating profit has improved despite
investment in growing the bank. As the retail lending business is profitable with more
than 20% incremental ROE, were able to absorb the expenses needed to invest for building
the bank. In Q4-FY23, the Core PPOP was at 2.36% (annualized) as a % of average assets, as
compared to 1.86% in Q4-FY22.
Our core PPOP (NII + Fees excluding Trading Gains - Opex) grew by 67%
as compared to balance sheet growth of 26% in FY23. This demonstrates the power of
incremental profitability in all our businesses.
This phenomenon has played out to bring in growth in core PPOP every
quarter and we expect it to continue over the next few years till we reach sustainable ROA
/ ROE levels as comparable to the industry. Adjusting for the one-time items in Q4- FY23,
the annualized ROA would have been 1.23% and the annualized ROE would have been 12.30% in
Q4-FY23, which has improved from 6.67% in Q4-FY22.
In the last 5 years, the Infrastructure financing book as % of overall
Loans & Advances has come down from 36.7% to 2.9% as of March 31, 2023.
The significant and growing part of the book, i.e. the Retail and
commercial business financing business has low NPA levels because of high-quality
underwriting, credit bureaus, technology, cash-flow based lending capabilities.
Asset Quality in the Corporate Book too is strong with adequate PCR of
99.84%.
We expect infrastructure book to wind down in due course, hence the
Bank level NPA excluding Infrastructure at 1.84% and 0.46% is relevant point to note.
Further, the retail and commercial book is well diversified.
Commercial Finance consists of Loans to small business owners and
entrepreneurs through products like business installment loans, micro business loans,
small business working capital, commercial vehicle, trade advances etc. with most loans
< Rs. 5 crore.
Loans & Advances are net of IBPC, Consumer Loans include personal
loans, education loan, consumer durable loan and cross sell.
Liabilities
The Bank provides high levels of customer service and becoming a brand
with a reputation as a clean and ethical institution, which has helped us grow our deposit
base.
The deposits of 31st March 2023 includes Rs. 2,131 crore of Current
Account Deposits received for short term during the closing days of FY23 from large
Government Banking client. Without the same, the CASA balance would be Rs. 69,852 crore as
of 31-Mar-23, 37% YoY growth.
We reduced deposit rates in 2021 from 7% earlier to 4% up to Rs.
10,00,000. Yet, our deposit growth continues to be strong based on strong service levels
and image as a clean ethical institution. Without the Rs. 2,131 crore current account
mobilized in March 2023 from Government Banking client as mentioned earlier, the CASA
Ratio would be 49.0% as of 31-Mar-23.
Total Customer Deposits (Retail Deposits + Wholesale Deposits) has
grown strongly by 4 Year CAGR (Mar-19 to Mar-23) of 36%. Without the Rs. 2,131 crore
current account
Capital Adequacy
| In Rs. Crore |
Mar-22 |
Dec-22 |
Mar-23 |
| Common Equity |
20,199 |
22,140 |
24,816 |
| Tier 2 Capital Funds |
2,525 |
4,218 |
4,585 |
| Total Capital Funds |
22,724 |
26,358 |
29,401 |
| Total Risk Weighted Assets |
1,35,728 |
1,64,094 |
1,74,762 |
| CET1 Ratio (%) |
14.88% |
13.49% |
14.20% |
| Total CRAR (%) |
16.74% |
16.06% |
16.82% |
The Bank is well capitalized for growth in future. mobilized in March
2023 from Government Banking client as mentioned earlier, the total customer deposits
would be Rs. 134,681 crore, growth of 44% on YoY basis.
We have transformed the liability profile in 4 years from wholesale to
retail The Retail wholesale Deposits mix has changed from 27 : 73 in Dec-18 to 76 : 24 in
Mar-23. Strong growth in retail deposits has significantly reduced dependency of the Bank
on the wholesale deposits. Certificate of Deposits (short term money) has come down from
Rs. 28,754 crores as of March 31, 2019 to Rs. 7,826 crores as of March 31, 2023, while the
total customer deposit base grew from Rs. 40,504 crore to Rs. 1,36,812 crore in this
period.
Our strong growth in retail deposits has reduced our dependence on
wholesale deposits and has provided greater stability to our liabilities.
SMA 1 is the overdue portfolio in Bucket 31-60 days, and SMA 2 is the
overdue portfolio in 61-90 days. SMA 1 (31-60 days overdue) and SMA 2 (61-90 days
overdue), put together are around 1.1% of the Book in retail & commercial segment.
Based on this, we expect a lower level of NPA formation in future.
Here we share the Gross and Net NPA of individual products in Retail
& Commercial Finance. Most of the products have GNPA ratio at less than 2% and NNPA
ratio at less than 1% as a result of stringent underwriting and risk management described
earlier. NPA of Loan Against Property is higher because it includes impact of
restructuring due to COVID. NPA in this portfolio is expected to come down over time as
the COVID affected portfolio runs off.
The Bank has reduced the net stressed assets, both in absolute value
and as % of the total assets. This indicates lower NPA levels going forward. The
restructured pool of the Bank has reduced by 60% in FY23 It forms 0.59% of the overall
Loans & Advances as of March 31, 2023 as compared to 1.84% as of March 31, 2022.
The consistent QoQ growth of the crore operating profit showcases the
strength of the core operating model, despite the investments in building capabilities
including new products, network, people, digital innovations etc. during this phase which
has made the organization ready for the next wave of growth.
In Q4-FY23, the Bank had trading gains of Rs. 216 crore and the Bank
utilized Rs. 79 crore of of the same to increase the PCR. Adjusting for these one-time
items, the net profit of the Bank would have been Rs. 701 crore for Q4-FY23. We expect
profitability to further improve going forward with scale.
Capital Adequacy
Our bank is strongly capitalized at 16.82% total Capital to Risk
(weighted) Assets Ratio (CRAR).
Corporate Governance
Eminent, qualified and experienced Board of Directors. All committees
are headed by Independent Directors.
RISK MANAGEMENT
IDFC Limited is a holding company for its various businesses. Wherever
applicable, concerned businesses have a robust risk management practice in place to
proactively identify and manage various types of risks, namely, credit, market and
operational risks. IDFC Limited has necessary risk policy for its investments in Bank
& other entities.
INTERNAL CONTROLS AND THEIR ADEQUACY
The company has a proper and adequate system of internal controls to
ensure that all assets are safeguarded and protected against loss from unauthorised use or
disposition and that the transactions are authorised, recorded and reported correctly.
Such internal controls are supplemented by a programme of internal audits, review by
management and documented policies, guidelines and procedures. These are designed to
ensure that financial and other records are reliable for preparing financial information
and other reports and for maintaining regular accountability of the companys assets. The
internal auditors present their report on a quarterly basis in operating companies and
half yearly basis in holding companies to the audit committee of the respective boards.
HUMAN RESOURCES
IDFC had 7 employees as on March 31, 2023.
+91-9892691696
