IDFC First Bank Limited Q4 FY23 Earnings Conference Call Insights

Key highlights from IDFC First Bank Limited (IDFCFIRSTB) Q4 FY23 Earnings Concall

Q&A Highlights:

• [00:17:28] Mohit Surana from CLSA asked about cost-to-income and liabilities going down from 198% to 174%, and what income should be expected from liability. V. Vaidyanathan MD said the company’s cost-to-income ratio has decreased from 95.13% to 72% over the last 4 years. Liabilities and credit cards contribute to the remaining higher ratio at 173% and 164%, respectively. The liabilities business raises deposits and the income is the difference between transfer pricing and what is paid to customers. The company believes that as branches grow and offer more fee-based products, this issue will resolve itself.

• [00:21:26] Mohit Surana from CLSA enquired about the reasonable transfer pricing for deposit by a branch. V. Vaidyanathan MD replied that it cannot be disclosed, but it’s expected to be based on the current GSEC pricing as a risk-free pricing for the situation.

• [00:22:17] Mohit Surana with CLSA asked how long it takes for a branch to reach its full potential in terms of getting liabilities and deposits, as the Bank has done well on deposits due to the healthy deposit efficiency per branch. V. Vaidyanathan MD clarified that the bank’s brand and service attract customers to its branches. Branches typically reach breakeven in about 24 months or earlier and are found to be very productive.

• [00:24:07] Mohit Surana at CLSA asked for an explanation of the treasury gains in 4Q and for the comparable NIM number vs. last quarter’s 6.36%. Sudhanshu Jain CFO replied that treasury gains for the quarter were due to venture capital fund investments redemption, resulting in a one-time gain of slightly over INR200 crores. The NIM for the quarter was 6.41% gross of IBPC sell-downs, up from 6.13% in 3Q23.

• [00:25:47] Vivek Ramakrishnan from DSP Mutual asked what’s going to propel the bank’s deposit growth in FY24. V. Vaidyanathan MD answered that the bank pays similar interest rates to its peer mid-tier banks but has a better hit rate per branch due to its strong brand and institutional image. Satisfied customers refer more customers to the bank.

• [00:28:56] Lalit Deo from Equirus enquired about the increase in SA saving rates and the blended rates on saving deposits during 4Q and the potential rate increase in terms of repricing. Sudhanshu Jain CFO clarified that the SA rate for the quarter was 5.37%, which was up by about 10 bps during the quarter.

• [00:36:14] Ishan Agarwal at Erevna Capital queried if achieving a 40-45% growth in FY24 and FY25 is feasible, considering the potential for cost-to-income operating leverage. V. Vaidyanathan MD replied that the bank’s PPOP growth this year was 60%, higher than the predicted 45-50%. IDFCFIRSTB expects to exceed the growth in cost, and if the balance sheet grows by 25%, the PPOP should grow faster due to increased scale.

• [00:39:32] Anand Dama from Emkay Global asked that within the SA deposit, what’s the share of the retail individual deposits and the nonindividual deposits. Sudhanshu Jain CFO said everything is individual only in the savings side. And retail deposits are 76% of the total deposits. It grew at 53% on a YoY basis, including term deposits.

• [00:41:17] Anand Dama from Emkay Global asked how the cost-income ratio will coming down as guided. V. Vaidyanathan MD replied that IDFCFIRSTB plans to reduce its cost-income ratio by addressing two key gaps; credit cards and liabilities. The bank expects the credit card business to break even in FY25 and to reduce costs by funding at a lower interest rate. This will result in a decreased cost-income ratio, higher ROA, and higher NIM.

• [00:56:22] Kunal Shah from Citigroup asked if there is any moderation in the prime home loan segments and are there any risks in the retail product segments due to rate increase and inflation. V. Vaidyanathan MD said generally there has been no risk or any delinquency in home loans. For IDFC, the home loan business is in its early stage with INR20,000 crores and is not very profitable. The bank is being built for future generations to enjoy.

• [01:02:03] Jai Mundhra from ICICI Securities asked that the adjusted ROA has increased to 1.23%, a 10-12 bp increase and what would be the likely progression from here. V. Vaidyanathan MD clarified that the company has achieved a 12% ROE, exceeding the guided double-digit target. The ROE targets will be met naturally without forcing things. The guidance given at the time of merger is to touch 13-15% ROE by FY25.