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WIKI ANALYSIS
IDBI(BSE:IDBIBANK) is one of India's leading public sector banks and with 2008 net income of Rs 9415.9 Crores[1], India's 4th largest bank in overall ratings[2]. With 871 ATMs, 504 branches and 316 centers IDBI is currently the tenth largest development bank in the world in terms of the reach. IDBI grew total revenues of Rs 14,481 Crores in 2006 to Rs 17,923 Crores in 2008. Over a similar period, the company grew total assets from Rs 65,979 Crores in 2005 to Rs 120,601 Crores in 2008, an increse of 83.33%.[3]
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 rough markets. That said, the first quarter of 2009 was marked by strong loan growth of 31%. Despite a slow-down in recoveries from Rs100 Crores in Q1FY08 (Rs160 Crores in Q4FY08)[1], an ease in interest rates by the Reserve Bank of India helped increase net profit from Rs 160 Crores in Q2FY09 to Rs 226 Crores in Q3FY09.[1]
Business 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 as also for expansion, modernisation and diversification purposes. IDBI also provides indirect financial assistance by way of refinancing of loans extended by State-level financial institutions and banks and by way of rediscounting of bills of exchange arising out of sale of indigenous machinery on deferred payment terms. In September 2003, IDBI diversified its business domain further 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. The Pvt Bank was the fastest growing banking company in India. The bank was pioneer in adapting to policy of first mover in tier 2 cities. The Bank also had the least NPA and the highest productivity per employee in the banking industry.[1]. IDBI Bank was ranked in the Top 5 Indian banks on the basis of Business Segment size[4].
Business and Financial Metrics
Year over year, IDBI Bank Ltd has been able to grow revenues from 960 Crores to 1690 Crores in the year 2008. Company has reduced the percentage of sales devoted to selling, general and administrative costs from 62.52% to 44.17%. This led to a net profit growth from 590 Crores to 750 Crores.[5]
| Annual income data, in Crores | 05-06 | 06-07 | 07-08 | |
|---|---|---|---|---|
| Net Interest Income | Rs 5380.7 | Rs 6345.5 | Rs 8020.8 | |
| Other Income | Rs 1280.4 | Rs 1027.2 | Rs 1635.5 | |
| Net Income | Rs 6448.7 | Rs 7148.6 | Rs 9145.9 | |
| Profit (after tax) | Rs 560.9 | Rs 630.3 | Rs 729.5 | |
Q1FY09 Financial Results
IDBI Bank reported a net profit of Rs 160 Crores, up by 4% as compared to the last year.This increase is primarily driven by addition of ~65 branches to the network over the year. As of June 30, 2008, IDBI Bank’s total business (deposits and advances) stood at Rs 1,50,832 Crores as against Rs 1,06,529 Crores as of June 30, 2007, registering a growth of 42%. Bottom-line growth(net profit growth) during the quarter was bolstered on buyback of shares of its subsidiary and excess depreciation write-back of Rs39.1 Crores. IDBI Bank continued to maintain a sound capital base as indicated by its Capital Adequacy Ratio (CAR). As against the stipulated RBI norm of 9%, the Bank's CAR stood at 12.02%. Total assets grew by 24% to Rs. 1,30,410 Crores [6]. Treasury gains for the quarter were supported by the buyback and Provisions were lower due to the write-back of NPA provisions.
Q2 FY09 Financial Results
IDBI Bank reported a net profit (after tax) of Rs 162 Crores, up by 4.49% as compared to last year's 156 Crores. Net Interest Income stood at Rs 229 Crores, up by 53.09% as compared to last year's Rs 150 Crores.Total business (deposits and advances) grew by 48.25% to Rs.1,66,564 Crores. The growth in "advances" is primarily driven by strong demand for corporate loans, as other sources of funding for infrastructure companies became expensive during the quarter. Deposits increased due to higher interest rates prevailing in the system. CASA was reported to be 16.19% of total deposits.[7]. Provisions were lower due to lower investment depreciation and write-back of NPA provisions
Q3 FY09 Financial Results
The Bank has posted a net profit of Rs 222.6 Crores for the quarter ended December 31, 2008 as compared to Rs 176 Crores for the quarter ended December 31, 2007. Total Income has increased from Rs 2450.7 Crores for the quarter ended December 31, 2007 to Rs 3513.3 Crores for the quarter ended December 31, 2008.[8]
Share Holding Pattern
| IDBI share holding pattern [7] | |
| Entity | Percentage |
|---|---|
| Govt of India | 52.68% |
| Indian Financial Institutions | 16.93% |
| Public | 15.60% |
| Foreign Institutional Investors | 3.34% |
| Others | 11.45% |
Business Segments
Wholesale Banking Services(58% income, 61% profits)
Wholesale Banking provided Rs 4652 Crores as Net Interest Income and Rs 423 Crores as the Net Profit in the year of 2008. The Wholesale bank provides services such as working capital finance, trade services, transactional services, cash management, etc to large, mid & small sized corporates 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 finalisation of the Ultra Mega Power Projects. Further, it is also an active member of the Inter-Institutional Group for power sector[1]
Retail Banking Services(27% income, 31% profits)
Retail Banking provided Rs 2166 Crores as Net Interest Income and Rs 187 Crores as the Net Profit in the year of 2008. The objective of the Retail Bank 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 his/her 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, Bank increased its bouquet 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 Units[1]
Treasury(15% income, 6% profits)
Wholesale Banking provided Rs 1283 Crores as Net Interest Income and Rs 44.8 Crores as the Net Profit in the year of 2008. 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.[1]. 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.[1]
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. [10] 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%.[1]
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.[11]
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.[12]
Key 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.[14] 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.[13]
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[15][16]
In 2008, the company had Rs 822.58 Crores of non performing assets (NPAs) as compared to Rs 528.37 Crores in 2007.[17] The net NPAs to net Advances ratio also increased to 1.30% in 2008 as compared to 1.12% in 2007.[17]. 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).[1]
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.[18] 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.[1]
Competition
IDBI is the the tenth largest development bank in the world.[19] The company faces competition from both national banks and regional banks in the country.
- State Bank of India (SBI-BY) : State Bank of India (BSE:SBI), a public sector bank, is the largest bank in India.[20]. Besides personal and corporate banking, SBI is also involved in NRI (Non Resident Indian) services through its network in India and overseas. As of May 2008, the bank had 21 subsidiaries and 10,186 branches.[21] The Bank has posted a Net Profit of Rs. 6729 Crores for 2007-08 as compared to Rs.4541Crores in 2006-07, registering a growth of 48.18%.[21]
- Punjab National Bank : Punjab National Bank with 4497 offices is the largest nationalized bank currently serving 3.5 Crores customers[22].Punjab National Bank has been ranked 38th amongst top 500 companies by The Economic Times. PNB has earned 9th position among top 50 trusted brands in India.The bank posted a gross profit of Rs. 4006 Crores for 2007-08 as compared to Rs 3231 Crores in 2006-07, registering a growth of 24.6%. [23]
- Bank of India (BANKINDIA.EQ-IN): Bank of India, established on 7 September 1906 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 IndiaThe bank posted a gross profit of Rs. 3701 Crores for 2007-08 as compared to Rs 2394 Crores in 2006-07, registering a growth of 54.59%.[24]
- HDFC Bank : The Housing Development Finance Corporation(HDFC) bank Limited (HDFCBANK.EQ-IN), the second largest private sector bank in India by net profit,[25] generated revenues of over Rs m 5228 Crores in 2007.[26]. 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,[27]the bank is the largest private sector bank in terms of branch network in India leaving behind ICICI bank.[28]
Financial Comparison of the competitors:
| Financial metrics FY2008[29] | ||||
|---|---|---|---|---|
| Name | Market Capitalization in Rs Cr | Net Profit in Rs Cr | Total Earnings in Rs Cr | Earnings per share |
| IDBI | 4,341.35 | 729.46 | 9772.1 | 10.06 |
| SBI | 73909.58 | 6729.12 | 58348.7 | 106.56 |
| SB Mysore | 1896 | 318.85 | 2916.3 | 885.71 |
| PNB | 14358.9 | 2048.76 | 16262.58 | 64.98 |
| Bank of India | 13344.7 | 2009.4 | 14472.15 | 38.26 |
Market Share
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[30]. IDBI bank has a market share of 1.6%. SBI, being the largest bank in India[31] has a market share of 22.7%. The top 8 banks account for barely 54 per cent of the market share with several smaller players occupying the remaining 44 per cent.[30]
References
- ↑ 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 IDBI Annual Report
- ↑ IDBI Official Website
- ↑ BusinessWeek_IDBI
- ↑ IDBI Investment Advisory Services-Report
- ↑ Business Week
- ↑ Financials Q1 IDBI Website
- ↑ 7.0 7.1 Financials Q2 IDBI Website
- ↑ Bank Ltd.&Ticker=IDBI Bank&MajorSector=2 Live Mint Financial Research: IDBI
- ↑ IDBI Annual Report pg 56
- ↑ IDBI Website, Home Finance
- ↑ IDBI Website,Intech
- ↑ IDBI Website,Gilts
- ↑ 13.0 13.1 Business Standard Banking Annual
- ↑ Hindu Business Line Dec 2006
- ↑ India Real Estate Tracker
- ↑ Economic Times News banking Industry
- ↑ 17.0 17.1 Annual Report Page 127
- ↑ Hindu Business Line_2003
- ↑ Finance IndiaBizClub
- ↑ SBI Website
- ↑ 21.0 21.1 Page 9, SBI Annual Report 2007-08
- ↑ Finance IndiaMart PNB
- ↑ Rediff Money PNB
- ↑ Rediff Money, Bank of India
- ↑ Insight 2nd Jan 2009.pdf Market Insight, 2nd Jan 2009, page 4
- ↑ Page 2, Annual report 2007-2008
- ↑ HDFC Bank website
- ↑ Livemint HDFC Bank pips ICICI in terms of branch network
- ↑ Money control, IDBI, Competitor data
- ↑ 30.0 30.1 Overview Banking Sector
- ↑ Wiki SBI
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