An exceptional provision led to IDFC reporting a loss of Rs 1411 crore in the September quarter, Sunil Kakar, Group Chief Financial Officer, IDFC tells CNBC-TV18.But for the provision, IDFC would have reported a net profit of Rs 511 for the half year ended September, he says.IDFC had to make a provision of Rs 2500 crore and reverse Rs 139 crore of interest income, towards stressed assets during the September quarter. Kakar says the provisions were not mandated by regulations, but were made as a prudent measure.He says the total size of stressed assets has been constant around Rs 5000 crore and he does not see any increase in slippages.Kakar says the bank's focus will be on the non-infrastructure sector, as there are few opportunities to lend in the infra sector. He sees continuing stress in infra sectors like power coal and gas.Kakar says the bank is looking to grow its loan book by 25 percent annually for the next few years. Below is the verbatim transcript of Sunil Kakar’s interview with Ritu Singh.
Q: What were the highlights of the quarter?
A: We have been mentioning since the last quarterly results that we will be taking significantly large one time provision which was about Rs 2,500 crore and some interest included it comes to Rs 2,639 crore. We took this provision this quarter which resulted in an abnormally high topline loss number of Rs 1,400 crore odd for the quarter and Rs 1,215 crore for the first half. Now, this needs to be adjusted. Once you takeoff the exceptional items, for the first half, adjusting for this exceptional item, we would have made a profit of Rs 511 crore. And hence, which is like a run rate for the quarter of about Rs 250 crore odd which is what we did in the last quarter also.
So, except for this exceptional item, we are more or less clocking about Rs 250 crore a quarter.
Q: But also tell me about your loan growth that has been much muted. You have actually seen degrowth there. Why is that the case? I mean going forward, where do you anticipate demand coming from?
A: You are all aware we are transitioning to a bank and there is an optimal level of loan which we would like to take into the bank and grow in the bank. The project loans, etc. if we give from the bank, we get better pre-emption from regulation with respect to statutory liquidity ratio (SLR), cash reserve ratio (CRR) and priority sector lending (PSL). So, we have optimised our level of balance sheet and the loan growth keeping in mind the PSL requirements which will kick in once we become a bank. It is also true that there has been no new opportunity to lend in the infrastructure sector. So, once we move to the bank which we have, we are focusing on increasing our loan book in the bank.
Q: Is there a target level that you are working with? You said when you are focusing on increasing your loan book in IDFC Bank?
A: We will focus largely on the non-infrastructure sector to start with because that was one of the reasons we moved to bank as to diversify our portfolio. Obviously, over four-five year period, we intend to grow the loan book at least 25 percent per annum. But it will not be every quarter 25 percent in that sense. But the overall target is to do a 25 percent compounded annual interest growth rate (CAGR)
Q: Tell us about your provisions for this quarter. Specifically, what was the rise in general and standard provisioning, the loan loss provisioning, all of that, if you could break it up for us?
A: A large part of the provision was this one time 45-IC provision as we call it, which is Rs 2,500 crore. So, that is like 90 percent of the provision. Other than that, as we had mentioned, there is a small Rs 139 crore of interest income reversal pertaining to the stressed assets. However, if we are creating such a large provision, which is not regulatorily required, then recognising income on an accrual basis is not prudent. What we are saying is we will recognise income on these stressed assets on realisation basis. So, it is prudent accounting. So, that is one part.
The other part is it is about Rs 250 crore for the full H1 and for the quarter was about Rs 118 crore odd of which Rs 30-40 crore would pertain to standard disbursement related provisions. We had another, what we call funded interest term loan (FITL) basically on restructured assets. So, the other provisions I would say largely relate to income recognition and not relating per se to principals of the loans.
Q: Your fresh slippages in this quarter were also quite high. While I understand you have been providing for them more than adequately, going forward also, do you see this stress continuing for some more time?
A: The infrastructure sector, especially the power and with coal and gas based related assets, they continue to remain stressed. Now, they are either in the restructured category or they may slip into the non-performing asset (NPA) category. We will keep a close watch on them and we hope that we are able to manage, but we can tell you that our total stressed assets from a regulatory perspective has remained for almost last one year constant at around Rs 5,000 crore. So, the total of Rs 5,000 crore, we do not expect any more slippages, but within that they may move in the classification bucket from restructured to NPA or vice-versa.
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