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IDBI Bank (NSE:IDBI) |
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WIKI ANALYSIS
IDBI Bank (BSE:IDBIBANK) is one of India's leading public sector banks and India's 4th largest bank in overall ratings.[1] With 871 ATMs, 504 branches and 316 centers IDBI is currently the tenth largest development bank in the world in terms of reach.
IDBI is hampered by its status as a public sector development bank. The company has weak core operations and net interest margins of <1%. A large part of the bank's equity holdings are in unlisted stocks and other illiquid investments that are difficult to sell in turbulent markets. However, IDBI Bank has managed to post strong profits, with the bank reporting net profit up 46% to Rs.251 Crore during the first quarter of fiscal 2011.[2]
Company Overview
IDBI, also known as Industrial Development Bank of India, was established in 1964 by an Act of Parliament to provide credit and other facilities for the development of the fledgling Indian industry. IDBI provides financial assistance, both in rupee and foreign currencies, for green-field projects, and expansion, modernization and diversification purposes. IDBI also provides indirect financial assistance by refinancing loans extended by State-level financial institutions and banks and by rediscounting bills of exchange arising out of sale of indigenous machinery on deferred payment terms.
In September 2003, IDBI diversified its business domain by acquiring the entire shareholding of Tata Finance Limited in Tata Home Finance Ltd., signaling IDBI’s foray into the IDBI Bank, with which the parent IDBI was merged, was a vibrant new generation Bank.
Business and Financial Metrics
First Quarter Fiscal 2011 Results (ended June 30, 2010)[2]
During the first quarter of 2011, IDBI Bank reported net profit up 46% to Rs.251 Crore (from Rs.172 Crore). The bank's fee based income grew by 53% to Rs.385 Crore (from Rs.252 Crore). During the quarter, deposits increased by 36% to Rs.1,57,204 Crore (from Rs.1,15,554 Crore). Total assets grew by 29% to Rs.2,24,657 Crore (from Rs.1,74,608 Crore)
Business Segments
Wholesale Banking Services (58% of revenue, 61% of profits)
The Wholesale Banking segment provides services such as working capital finance, trade services, transactional services, and cash management to large, mid & small sized corporations and and agri-based businesses.
It has been actively participating in structuring and financing of infrastructure projects in the areas of power, telecom, roads, airports, seaports, railways and logistics as well as Special Economic Zones. IDBI is a member of the Core Committee of the Government set up for finalization of the Ultra Mega Power Projects. Further, it is also an active member of the Inter-Institutional Group for power sector[3]
Retail Banking Services (27% of revenue, 31% of profits)
The objective of the Retail Banking segment is to provide its target market customers a full range of financial products and banking services, giving the customer a one-stop window for all banking requirements.
In Retail Finance, IDBI offers an array of innovative Retail Asset products, both Secured (Housing Loan, Mortgage Loan, Loan against Securities) and Unsecured (Personal Loans, Educational Loans and Overdraft to Merchant Establishments). During the year, the bank increased its portfolio of retail products by launching Loan against Rent Receivables, Loan against Commercial Property, Reverse Mortgage Loan, Holiday Travel Loan and Loan to the Staff of IDBI-Assisted Unit[3]
Treasury (15% of revenue, 6% of profits)
In Corporate Finance, IDBI offers a wide array of corporate banking products under various business segments such as Deposits, Cash Management Services, Central and State Government agency business (both direct and indirect taxes), Trade Finance and Treasury Products.[3] Within Treasury, the bank has three main product areas - Foreign Exchange and Derivatives, Local Currency Money Market & Debt Securities, and Equities.
Subsidiaries
IDBI Capital Market Services Limited (IDBI Capital) offers Stock Broking, Distribution of Financial Products, Merchant Banking, Corporate Advisory Services, Debt arranging & underwriting, Portfolio Management of Pension Funds & Research services to institutional, corporate and retail clients. IDBI Capital is a major player in the Pension Fund Management with assets of over Rs.8250 Crores. The Equity broking segment has scaled up its operations enhancing turnover of cash segment by 40% over the previous year.[3]
IDBI Homefinance Ltd. is a 100% subsidiary of IDBI Bank Ltd. The Company was incorporated on January 10, 2000 with the main object of carrying on the business of providing long term finance to any person, company or corporation, society or association enabling such borrower to construct or purchase in India a house or flat for residential purposes. [4] During the year, IDBI Homefinance’s outstanding loan portfolio increased by Rs.563 Crores from Rs.2147 Crores to Rs.2710 Crores, registering a growth of 26%.[3]
It provides IT related services in the area of Consultancy, System Integration, System implementation & support, Applications & Server hosting and other IT related managed services and specialized training to the IDBI Group companies and the other organizations, focusing mainly on the BFSI sector.[5]
IDBI Gilts Ltd. was set up to undertake Primary Dealership [PD] Business. The company's business includes Bond trading, underwriting in auctions of primary issuance of Government dated securities and treasury bills. In addition, IDBI Gilts also plans to be a major player in the interest rate and credit derivative market.[6]
Trends and Forces
Publicly owned Indian banks lag behind private and foreign banks
New private banks in India generally have lower bank spreads and higher profitability than public banks.[7] The operating profit growth of public sector banks is reported to be a 9.53% versus 40% growth in operating profit of private banks and 36% in case of foreign banks.[8]
Bad legacy loan portfolio
IDBI has a bad legacy loan portfolio, which is currently locked in zero-yield government bonds under an agreement with the government. Loan recoveries on such long-standing NPLs are largely dependent on the value of the underlying land, which has fallen with the 2008 Financial Crisis[9][10]
In 2008, the company had Rs 822.58 Crores of non performing assets (NPAs) as compared to Rs 528.37 Crores in 2007.[11] The net NPAs to net Advances ratio also increased to 1.30% in 2008 as compared to 1.12% in 2007.[11]. In Q1FY09, IDBI witnessed a significant slow-down in recoveries to Rs 27 Crores as compared to Rs 100 Crores in Q1FY08 (Rs160 Crores in Q4FY08).[3]
Development bank subject to Reserve Bank interest rate control
IDBI is extremely sensitive to interest rates set by the Reserve Bank of India. As far back as 2003, the Reserve Bank of India raised interest rates to 14%. Around a similar time, IDBI saw its non performing asset ratio climb to 14% as its lendees struggled to meet payments.[12] More recently, an ease in interest rates by the Reserve helped increase net profit from Rs 160 Crores in Q2FY09 to Rs 226 Crores in Q3FY09.[3]
Competition
IDBI is the the tenth largest development bank in the world.[13] The company faces competition from both national banks and regional banks in the country.
- State Bank of India (SBI-BY) (BSE:SBI), a public sector bank, is the largest bank in India.[14] Besides personal and corporate banking, SBI is also involved in NRI (Non Resident Indian) services through its network in India and overseas. The bank has 21 subsidiaries and 10,186 branches.[15]
- Punjab National Bank is the largest nationalized bank currently serving 3.5 Crores customers.[16] Punjab National Bank has been ranked 38th amongst the top 500 companies by The Economic Times. PNB has earned 9th position among top 50 trusted brands in India.
- Bank of India (BANKINDIA.EQ-IN) is a bank with headquarters in Mumbai. Government-owned since nationalization in 1969, it is one of India's leading banks with about 2,884 branches including 27 branches outside India.
- [[HDFC Bank] (Housing Development Finance Corporation) is the second largest private sector bank in India by net profit.[17] Headquartered in Mumbai, the bank is one of the first private banks to be set up in India. With a network reach of 1412 branches spread over 528 cities across India and having over 2890 ATMs across these cities,[18] the bank is the largest private sector bank in terms of branch network in India leaving behind ICICI bank.[19]
Market Share
The Indian Banking sector is a fragmented market with 27 PSU banks, 25 private banks, 30 foreign banks and a host of cooperative and regional rural banks[20]. IDBI bank has a market share of 1.6%. SBI, being the largest bank in India[21] has a market share of 22.7%. The top 8 banks account for barely 54% of the market share with several smaller players occupying the remaining 44%.[20]
References
- ↑ IDBI Official Website
- ↑ 2.0 2.1 IDBI Investor Relations: "IDBI Bank's Q1 2011 net up 46% to Rs.251 Crore" July 22, 2010
- ↑ 3.0 3.1 3.2 3.3 3.4 3.5 3.6 IDBI Annual Report
- ↑ IDBI Website, Home Finance
- ↑ IDBI Website,Intech
- ↑ IDBI Website,Gilts
- ↑ Hindu Business Line Dec 2006
- ↑ Business Standard Banking Annual
- ↑ India Real Estate Tracker
- ↑ Economic Times News banking Industry
- ↑ 11.0 11.1 Annual Report Page 127
- ↑ Hindu Business Line_2003
- ↑ Finance IndiaBizClub
- ↑ SBI Website
- ↑ Page 9, SBI Annual Report 2007-08
- ↑ Finance IndiaMart PNB
- ↑ Insight 2nd Jan 2009.pdf Market Insight, 2nd Jan 2009, page 4
- ↑ HDFC Bank website
- ↑ Livemint HDFC Bank pips ICICI in terms of branch network
- ↑ 20.0 20.1 Overview Banking Sector
- ↑ Wiki SBI
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