IDFC FIRST Bank Limited Ratings reaffirmed at 'F AAA / Stable, CRISIL AA / Stable / CRISIL A1+'

CRISIL Ratings has reaffirmed its ratings on the debt instruments and fixed deposit programme of IDFC FIRST Bank Limited's (IDFC FIRST) debt instruments and fixed deposits programme at 'CRISIL AA/FAAA/Stable/CRISIL A1+'.

The overall rating continues to reflect the bank's healthy capitalisation, increasing retailisation of the portfolio, and expectation of improvement in earnings profile over the medium term. These strengths are partially offset by the inherent weakness in asset quality in the legacy wholesale portfolio. The ability of IDFC FIRST to maintain good asset quality in the growing retail portfolio over a longer period and on a larger scale will be a key monitorable.

On the asset quality front, in line with Reserve Bank of India's (RBI) measures for Covid-19 pandemic, IDFC FIRST had given a moratorium to its borrowers from March- August 2020. While the collection efficiency was impacted during the initial months of the moratorium, collections have increased since then. However, the second wave of Covid-19 pandemic has resulted in intermittent lockdowns and localised restrictions. This could lead to some delay in collections in the upcoming months due to the impact on the borrower cash flows. Further, any change in the behaviour of borrowers on payment discipline can affect delinquency levels. Going forward, with the second wave of Covid-19 pandemic, IDFC FIRST's ability to manage collections and asset quality will remain a key monitorable.

As on December 31, 2020, gross non-performing assets, excluding the benefit of the Supreme Court's (SC) order dated September 3, 2020 on a standstill on NPA classification (proforma gross NPAs), stood at 4.18%, up from 2.6% as on March 31, 2020. . In the retail segment, proforma gross NPAs as on December 31, 2020 stood at 3.88% compared to 1.77% as on March 31, 2020). As on March 31, 2021, reported gross NPAs which were significantly lower as on December 31, 2020 are expected to be closer to the proforma numbers for December 2020 with the SC dispensation not being available.

The inch up in gross NPAs was primarily due to the vulnerability of the borrowers in key segments of the bank - medium, small and micro enterprises (MSME) and retail borrowers to economic slowdown and Covid-19.

Consequently, the bank has also provided relief to stressed borrowers under the RBI's August 2020 Resolution Framework for COVID-19-related Stress. It had approved and implemented restructuring on around 0.8% of its total funded assets as on December 31, 2020, which is likely to have increased further to 1.8%-2.0% at the end of March 2021.

Nonetheless, the bank has made sizeable provisions over the past four quarters to strengthen the balance sheet against potential credit losses. As on December 31, 2020, IDFC FIRST held additional Covid-19 provisions of Rs 2,390 crore (2.2% of the total funded assets). The bank has increased the provision coverage ratio to 75.1% of proforma NPAs as on December 31, 2020 from 64.5% as on March 31, 2020. Further, the bank has raised Rs 5,000 crore in the past 12 months (Rs 2,000 crore in May 2020; and Rs 3,000 crore in April 2021) to strengthen capitalisation; this provides coverage against potential asset side risks. Expertise of the management and its demonstrated ability to maintain retail asset quality in Capital First Ltd (CFL) across various cycles and events will also hold them in good stead.

Despite an increase in credit costs (1.8%; annualised) in the nine months through December 2020, the bank saw an improvement in overall earnings profile with return of assets (RoA) at 0.3% supported by strong growth in core earnings, as reflected in the pre-provisioning operating profits (PPoP). This increased to Rs 2,468 crore for the nine months through December 2020, from Rs 1,589 crore in the corresponding period of the previous fiscal. The impact of the second wave of Covid-19 credit costs and thereby profitability needs to be seen. However, the significant provision buffers already built up, in addition to comfortable PPoP, should help absorb any potential increase in credit costs in the upcoming quarters.

Shares of IDFC First Bank Ltd was last trading in BSE at Rs.54.7 as compared to the previous close of Rs. 54.8. The total number of shares traded during the day was 1553631 in over 6784 trades.

The stock hit an intraday high of Rs. 55.5 and intraday low of 53.55. The net turnover during the day was Rs. 85119575.

Source : Equity Bulls

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