Reverse repo rate remains at 3.35%, Marginal Standing Facility Rate and Bank Rate at 4.25% while the projection for India’s real Gross Domestic Product (GDP) is maintained at 9.5 per cent for FY22, RBI Governor Shaktikanta Das said while announcing the monetary policy review.
Inflation target raised
RBI has raised the CPI inflation estimate for FY22 to 5.7% from 5.1%.
“CPI inflation surprised on the upside in May; price momentum however moderated. Outlook for aggregate demand is improving but underlying conditions are still weak. More needs to be done to restore supply-demand balance in no. of sectors.
He said the recent inflationary pressures are evoking concerns but the current assessment is that these are transitory.
“We are in n a much better position as compared to June 2021. Need to remain vigilant on the possibility of a third wave,” he said.
The recent hallmarking rules have reformed the gold jewellery segment in India. The union government came up with new rules that have obliged the jewellery sellers to sell gold with hallmark. But for now, jewellers can continue to buy old gold jewellery back even without a hallmark from the consumers. The 20, 23 and 24 carat gold will also be hallmarked.
From now on this will give people the assurance of buying pure gold. Hallmarking of gold jewellery assures buyers purity of the precious metal. Presently, only 30% of the Indian Gold Jewellery is hallmarked. The new rules are expected to improve the segment and make it more professional and authentic. Also, the World Gold Council has informed that India has around 4 lakh jewellers. But out of them, only 35879 are Bureau of Indian Standards (BIS) certified.
In addition to that, a Hallmarking Unique ID or HUID has been created for each hallmarked jewellery piece. HUID is a six digit alphanumeric code. This ID will be given at the time of hallmarking. This is in the eye of all the new chaos. Some of the industry insiders are saying that is HUID is delaying the process of jewellery certification.
The government has decided to implement this in 256 districts in the first phase. These districts already have assaying marking centres. But the jewellers who have an annual turnover up to Rs. 40 lakh will be exempted from the new mandatory hallmarking system.
This mandatory hallmarking of gold jewellery has been introduced in India during mid-June 2021. From that time in more than one month, the number of jewellers registering with the Bureau of Indian Standards (BIS) to sell hallmarked jewellery has jumped. The figure went doubled to 74,000. It shows that the Indian jewellers are trying to get accustomed to the new rules, the pace is slow though.
The union government implemented the rules within a very short span of time and caught the jewellers with surprise. Hence, the businesses did not get much scope to prepare them for the new ecosystem. According to an official statement by the All India Gem and Jewellery Domestic Council (GJC), this decision brought confusion, immense unrest and disruption amongst jewellers.
GJC also said that the government did not include several vital points. These were discussed during a meeting between the industry stakeholders and the union government on June 15, 2021. GJC Chairman Ashish Pethe commented, “A very important point of one-time registration for jewellers and no renewal with the BIS is still not clearly mentioned in the FAQs on the BIS website. Another significant point about hallmarking being applicable only at the first point of sale is also missing.”
The jewellers are also likely to face it tough, with the fact that they will have to tag their jewellery pieces with a unique ID and upload the details on the BIS website. Then they can send it to ‘Assaying and Hallmarking Centres’ or AHCs for hallmarking. It means that not only the AHCs, but also the jewellers will be involved
However, this decision has been taken after numerous postponements and multiple dialogues with the industry stakeholders. Importantly, The BIS Hallmarking Regulations were implemented in June 2018.
In the last 1.5 months around 72 AHCs out of 933 have been suspended due to the new regulations. Here this is important as these 72 assaying centres have been working in the country for decades. Now, these have been suspended, which means earlier they might have done irregularities with the rules.
For investment related articles, business news and mutual fund advise
Allow Notifications
You have already subscribed
Story first published: Friday, August 6, 2021, 10:01 [IST]
Sharekhan has increased its FY2022-FY2023 earnings on GAIL estimates to factor in improved volume outlook for petrochemicals segment (as the management guided to achieve 100% utilisation in FY2022) and higher profitability for LPG-LHC business.
The recent sharp correction in GAIL’s stock from its 52-week high of Rs 170 provides a good entry opportunity for long term investors as earnings outlook (expect a 34% net profits compounded annual growth rate over FY21-FY23E) remains strong given sustained high-crude linked commodity prices and a potential sharp improvement in RoE to 16.4% in FY2023E.
“GAIL’s valuation of 5.7 times its FY2023E EV/EBITDA is attractive, and we expect the company to be the key beneficiary of the government’s aim to increase the share of gas in India’s energy mix, as the same provides sustainable volume growth opportunity for its gas pipeline and trading business. Additionally, potential value unlocking from monetisation of gas pipeline assets would act as a key re-rating catalyst. Hence, we maintain our Buy rating on GAIL with an unchanged target price of Rs 196,” the brokerage has said.
Gujarat Gas: Buy with a price target of Rs 890
Current market price
Rs 770
Target price
Rs 890
According to Sharekhan robust margin performance was driven by full benefit of the Rs. 9/scm price hikes taken in Jan-Feb, and lower gas cost on account of decline in spot LNG price and higher use of domestic gas. Industrial PNG volume declined by 19% q-o-q to 7.8 mmscmd as demand from Morbi customers fell by 23% q-o-q to 5.6 mmscmd.
“Management maintained its 10% p.a. volume growth guidance for next 3-4 years and FY22 margin guidance of Rs. 5.5-6/scm. Volumes recovered to 12 mmscmd but EBITDA margin likely to fall to Rs. 4-4.5/scm on recent surge in spot LNG price.
We maintain a Buy on the stock of Gujarat Gas with a revised target of Rs. 890. Gujarat Gas industry leading volume/earnings growth outlook (expect 24% PAT CAGR over FY21-FY24E), high RoE of 30% and robust FCF justified premium valuation,” the brokerage has said.
Risks for Gujarat Gas stock
Sharekhan also sees the lower-than-expected gas sales volume in case of COVID-19 led economic slowdown as one of the risks. “A delay in development of new GAs, a sharp rise in LNG prices and adverse regulatory changes could impact outlook and valuations,” the brokerage has said.
2021-22
2022-23
Revenue
Rs 13,956 crores
Rs 16,425 crores
OPM
17.40%
18.00%
Price to earnings
33.8
27
Price to book
9.3
7.4
Disclaimer
Investing in stocks poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies Pvt Ltd, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article. Investors should take care because the markets have hit record peaks in the last few days.
The brokerage is optimistic on the stock of air compressor major Elgi Equipments. The firm has set a price target of Rs 260 on the stock, as against the current market price of Rs 203.
According to ICICI Securities, long-term incremental growth will be driven by rapid growth in international markets, new products such as innovative AB series compressors, and traction in the India business. Double-digit return ratios, net debt-free b/s, and excellent cash generation.
Elgi’s share price has grown by ~2.2x over the past five years (from Rs65 in March 2016 to Rs 205 levels in March 2021). Considering strong growth outlook, better margins, we maintain BUY rating Target Price and Valuation: We value Elgi at Rs 260 i.e. 42x P/E on FY23E EPS.
We also like Grindwell Norton in our coverage. Margin expansion (from ~16.7% in FY20 to 20.6% in FY23E) .BUY with a target price of Rs 151,” the brokerage has said.
Current Market Price
Rs 203
Target Price
Rs 260
Upside Potential
28%
Buy Gabriel India for an upside of Rs 160
According to the brokerage firm, Gabriel India (GIL) is a top-10 global shock absorber producer that caters to the 2-W, 3-W, PV, CV, railway, and aftermarket markets.
“The stock price has grown at modest ~3% CAGR from Rs 115 levels (August 2016), having done slightly better than Nifty Auto index. We retain BUY rating on mix & margin gains and large EV opportunity Target Price and Valuation: We value GIL at 20x P/E on FY23E basis for a revised target price of Rs 160 per share (earlier target price Rs150).
Margin improvement to 8.5 percent by FY23E will be aided by lower breakeven levels, cost focus, and a bigger percentage of aftermarket and exports from present levels. Net cash b/s (Rs 250 crore in cash and liquid investments); 14% of market capitalization,” the brokergae has said.
Apart from GIL, we favor JK Tyre for auto auxiliary coverage. When it comes to b/s deleveraging, asset sweating, and capital efficiency, BUY with a target price of Rs 180, the brokerage added.
Current Market Price
Rs 128
Target Price
Rs 160
Upside Potential
25%
Buy Indian Oil Corporation, Says ICICI Securities
According to ICICI Securities, higher costs were passed on to customers, the marketing segment’s performance improved QoQ. GRMs were recorded at US$6.6/bbl, down from US$10.6/bbl QoQ due to larger inventory gains in Q4FY21. EBITDA was Rs 11,126.1 crore, down 17.6 percent from the previous quarter.
“IOC’s refining margins are expected to improve gradually with an improvement in product cracks. Steady marketing margins and better sales with relaxations in lockdown are expected to lead to better profitability. We upgrade our rating from HOLD to BUY on the stock. Target Price and Valuation: We value IOC at Rs 120 i.e. average of P/E multiple: Rs 115 /share and P/BV multiple: Rs 125/share.
Apart from IOC, we prefer MGL in our oil and gas coverage because it benefits from India’s growing gas demand and will continue to rise due to consistent volume growth, stronger pricing power, and a favourable regulatory environment. BUY with a target price of Rs 1,340, the brokerage has said.
Current Market Price
Rs 104
Target Price
Rs 120
Upside Potential
15%
Disclaimer
Investing in stocks poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Investors should take care because the markets are near record highs.
SEOUL, – South Korea‘s Kakao Bank Corp jumped 38% above its initial public offering (IPO) price on its market debut, amid growth expectations for the digital bank’s planned mobile mortgage business and other offerings.
The listing is the country’s biggest since game company Netmarble’s IPO raised 2.7 trillion won in 2017, continuing a bumper year for South Korean stock market floats, despite some valuations being slashed in recent offerings.
The digital bank began trading on Friday at 53,700 won per share compared to its IPO price of 39,000 won, then soared shortly after to as much as 74% above the IPO price. This compared with a 0.1% rise of the KOSPI benchmark index.
Its largest shareholder is Kakao Corp, operator of South Korea’s dominant chat app, with a 27.3% stake.
Kakao Bank, South Korea’s first digital bank to go public, became profitable in 2019 after less than two years in operation and has 13.35 million monthly active users (MAUs), it said last month.
The opening price valued Kakao Bank at 25.5 trillion won, which made it the 16th largest stock on the KOSPI, based on Thursday’s closing valuations. In morning trading on Friday, it climbed to the 11th largest stock on the KOSPI, excluding preferred shares.
Analysts said its high valuation, which overtook market capitalisations of established banking groups such as KB Financial Group and Shinhan Financial Group as of Friday, could not be explained by traditional bank valuation measures.
“Kakao Bank’s stock price-to-earnings ratio based on the IPO price is a multiple of 56, while that of existing banking shares is around a multiple of five. It’s got the valuation of a different industry,” said Kim Eun-gab, analyst at IBK Investment & Securities. (Reporting by Joyce Lee, Jihoon Lee and Heekyong Yang; Editing by Christopher Cushing and Sonali Paul)
Ever thought why the initial public offerings of many companies receive bids that are over 100 times the offer. Apart from the investor appetite and retail frenzy the biggest factor in work is margin financing of IPOs by banks and NBFCs.
July saw several records being broken in the IPO market as a whopping Rs 8.86 lakh crore were bid for IPOs of Rs 18,400 crore on offer. About 98% of the money came from margin financing. Zomato, with an IPO size of Rs 9,375 crore, got bids for Rs 3.58-lakh crore, a subscription of nearly 39 times.
How does it work?
Unlike for retail investors, there is no limit on HNIs and institutions bids in an IPO. HNIs have to put only Rs 1 crore of their own for a bid worth Rs 100 crore while the NBFC funds the remaining 99 per cent. With the lenders charging 10-15%, the cost is just Rs 20 lakh towards interest for Rs 100 crore bid for 3-5 days. With all IPOs listing above the issue price, the leveraged investor can exit on the opening day. With a spectacular listing like the Zomato that gave 63% returns, more players are attracted to the market. The risk of the IPO collapsing in the initial days is virtually absent due to the heavy bidding and grey market premium.
With 15 per cent of an IPO reserved for HNIs and 50 per cent for institutions, their allotment is often enough to cover their interest cost as their bids are extremely high. Self-funding and other sources of borrowing would further increase the size of the IPO financing market.
The fund raise
Bajaj Finance had raised Rs 27,200 crore since June 10, while Infna Finance, Aditya Birla Finance and Tata Capital have collected Rs 13,225 crore, Rs 11,380
crore and Rs 9,625 crore, respectively. Two JM Financial firms have together raised Rs 16,300 crore, while IIFL Facilities Services and IIFL Finance have garnered about Rs 11,600 crore, according to reports. Most non-bank lenders raised funds by issuing commercial papers in the primary market. These papers have tenures of seven to 10 days and yield to maturity between 3.7% and 5.8%.
The risk
Financiers insist the risk is limited since there is a margin for the lender in terms of shares. Normally, higher the funding cost, lower the chances of making money on the IPO after all costs are factored in. Investors need to pay interest on the entire amount borrowed and not on the amount actually allotted. That is why higher oversubscription works against borrowers as they have to have more interest on idle funds.
The euphoria due to excess funding is leading to artificial demand and distorting IPO prices in the short term. While the funded investors exit on listing, serious investors get low allotments.
In January this year, the Reserve Bank of India had proposed to cap IPO financing by NBFCs to up to Rs 1 crore per person, a move which may lead to a sharp drop in bidding by high net worth individuals (HNIs) and a drastic reduction in subscriptions of offers.
Banks have a Rs 10-lakh limit on IPO financing and there is no such cap for NBFCs. “IPO financing by NBFCs has come under close scrutiny, more for their abuse of the system,” the RBI said in a discussion paper. “Taking into account the unique business model of NBFCs, it is proposed to fix a ceiling of Rs 1 crore per individual for any NBFC,” the RBI said. Market players said that RBI’s proposed rule would surely bring a break to highly subscribed IPOs.
The order also disallowed the MSCB to take over the Mumbai-based City Cooperative Bank, stated a communication to both the banks and the MSCB from the Commissioner for Cooperation and Registrar, Cooperative Societies (CC&RCS). The communication has been accessed by the TOI.
Though neither the RBI and nor the CC&RCS communicated reasons for the denial of permission to the banks to merge, sources familiar with the matter said National Bank for Agriculture and Rural Development (Nabard) expressed reservations about the deal. A source said Nabard expressed concerns about agro-finance being used for retail banking, with the MSCB being primarily an agricultural bank. The source said RBI was concerned about the merger setting a precedent for cooperative banks across the country, which would bring about policy difficulties.
MSCB chairman Vidyadhar Anaskar said, “We had prepared and submitted the proposal nearly two years ago after RBI asked for a joint proposal with the Rupee Bank and getting approved at the annual general meeting. But during this time, we were asked no questionsabout the financial positions or feasibility. Nabard should not have had a say in this proposal, as they are a supervisory authority, with RBI being the sole licensing authority,”
Rupee Bank administrator Sudhir Pandit said, “The RBI’s decision is not totally unexpected. It is necessary to mention here that there are no shortcomings or lacunae in the merger proposal. Rupee Bank has good business potential. We will continue our efforts for its merger with other strong banks, or its conversion into a small finance bank or its revival.”
Other income has come to the rescue for banks even as they grapple with weak loan growth, in the first quarter of the fiscal year, bank results show.
All banks have seen a year on year growth in other income led by fees and recovery in large written off accounts like the defunct Kingfisher Airlines as a result of which the contribution of other income to total income has increased.
The trend is the same for both large and small banks. For example, State Bank of India (SBI) reported a 24% rise other income to Rs 11,803 crore led by a 21% rise in fees and a Rs 1,692 crore recovery from the written off Kingfisher Airlines’ account which has increased the proportion of other income to 15% of total income from 11% last year.
The story is similar in the large private sector bank’s as well which traditional have a larger proportion of fee income. HDFC Bank‘s other income grew 54% led by fees and commission and income from foreign exchange and derivative transactions, increasing the share of other income to total revenues to 17% from 12% a year earlier. HDFC’s peer ICICI Bank also reported a 53% rise in other income led by fees despite a fall in treasury income.
Analysts say higher proportion of other income though legitimate is driven mostly by lumpy income streams which are not sustainable. However, they expect banking core incomes to rise as loan growth picks up later this year.
“Other income has increased through two main heads namely income from treasury and income from written off accounts. Both of these are very volatile and depend on market conditions and can be called one offs. Banks are sitting on excess SLR and have booked profits this quarter which is reflected in treasury gains. Having said that they are both legitimate income streams and there need not be a concern though for the quality of earnings to be sustainable revival of credit growth is important,” said Asutosh Mishra, head of research at Ashika Stock Broking.
Other income has risen for even smaller lenders as banks dug deep for new income streams faced with twin challenges of depressed loans demand and slow recovery of loans in light of the second wave of the pandemic.
RBL Bank’s other income doubled to Rs 695 crore led by a 137% growth in retail fee income even as total advances fell marginally to Rs 56,527 crore from Rs 56,683 crore a year earlier. Even public sector Bank of India reported a 39% rise in other income due to recovery from a written off aviation account and foreign exchange income even as loan book fell 0.18%.
“This quarter there also has been a increase in forex trading income as forward premiums came down during the quarter, allowing banks to book profits. Along with the repricing the bond investments this has helped other income,” said Anil Gupta, vice president financial ratings at ICRA.
Gupta expects credit growth to revive later this fiscal as corporate working capital requirements will increase due to higher commodity prices. “We expect credit growth of 8% next fiscal which will bring higher core income and also fees so there is no reason to worry on the outlook,” he said.
The second Covid-19 wave has impacted the recovery and lending activities of commercial banks. From tackling scattered lockdowns to managing recovery and collections, banks are expecting a recovery phase in the coming quarters.
Private lender Federal Bank recorded the highest ever operating profit of Rs.1135 Cr with 22% Y-o-Y growth in Q1FY22. The total business of the bank reached Rs. 299158.36 Cr registering Y-o-Y growth of 8.30% as of 30th June 2021.
Shyam Srinivasan, Managing Director, and CEO, Federal Bank said in a statement, “The external environment continues to be challenging however we have managed to keep our operating momentum intact by delivering our highest ever operating profit, for the quarter. Our CASA ratio is at an all-time high and we continue to build a granular liability franchise with more than 90% of our deposits being retail in nature. Our relationship with the NR diaspora continues to blossom with our share in personal inward remittances increasing to 18.20%. We have also managed to keep asset quality in check with only a marginal uptick in GNPA and NNPA.”
Shyam Srinivasan (File Pic)
On similar lines, IDFC FIRST Bank in its Q1FY22 financial results announced the highest ever core pre-provisioning operating profit at Rs. 601 Crore. Total Income grew by 36% YoY basis to reach Rs. 3,034 crore in Q1FY22.
V Vaidyanathan, Managing Director, and CEO, IDFC FIRST Bank, said in a statement, “Our CASA ratio is high at 50.86% despite reducing savings account interest rates by 200 bps recently. Because of our low-cost CASA, we can now participate in prime home loans business, which is a large business opportunity.”
“Regarding the loss during the quarter, we have made prudent provisions for COVID second wave, and expect provisions to reduce for the rest of the three quarters in FY 22. We guide for achieving pre- COVID level Gross and Net NPA, with targeted credit loss of only 2% on our retail book by Q4 FY 22 and onwards, assuming no further lockdowns.” Vaidyanathan added. South-based lender CSB Bank in its First Quarter results announced a profit after tax at Rs 61 Cr in Q1FY22 as against Rs 53.56 Cr in Q1FY21 and Rs 42.89 Cr for the sequential quarter. Net profit increased by 14% YoY. The operating profit of the bank is Rs 179.78 Cr with a Y-o-Y -growth of 39%.
CVR Rajendran, Managing Director & CEO at CSB Bank said in a statement, “COVID second wave coupled with the LTV management of gold loans did pose some challenges in the first quarter of FY 22. Lockdowns, alternate holidays, slowing down of economic activity, controlled movements due to strict social distancing norms, lack of transport, etc restricted the customer access to branches which in turn impacted both the fresh pledges and releases. Thankfully, the worst seems to be over now and recoveries are happening in full swing. The portfolio LTV that was at 83% has been brought down to 75%. The aggressive vaccination push and controlled localised lockdowns have helped in managing the second wave to a great extent and we are optimistic to catch up the business opportunities on a larger scale from this quarter. Bandhan Bankalso announced its Q1FY22 results with pre-provision Operating Profit (PPOP) at 9.3%; up from 8.6% in the Q4FY21.
Chandra Shekhar Ghosh, Managing Director, and CEO of Bandhan Bank said in a statement, “Despite the challenging environment due to covid second wave, we have delivered the best-ever quarter in terms of operational performances. Collections continue to improve with covid restrictions getting relaxed. Typically, the second half of the financial year is always better for the bank in terms of growth and collections. With the easing of the covid second wave and upcoming festive season, we are confident of achieving better performance going forward.” While Axis Bankreported a 94 percent year-on-year rise in standalone net profit at Rs 2,160 crore as against Rs 1,112 crore reported in the same quarter of last year (Q1FY21).
Amitabh Chaudhry, MD & CEO, Axis Bank said, “Despite second wave headwinds, we made tremendous progress this quarter on our strategy of building a high-quality granular franchise, increasing our relevance in the lives of the customers and the communities we serve, and building the best digital bank in the country,”
“The journey we started two years back is gathering momentum with a strong balance sheet, conservative provisions, and a steady operating performance supporting our aspirations. We have also set a bold mandate for our long-term ESG goals. We continue to monitor the macroeconomic environment closely and we remain confident about our strategy and the road ahead,” Chaudhry said.
Amitabh Chaudhry (File Pic)
The country’s largest lender, The State Bank of India recorded its highest-ever quarterly profit at Rs 6,504 cr. in Q1FY21. This implied a 55-per cent year-on-year (YoY) rise in net profit compared to Rs 4,189.34 crore in the year-ago period. Dinesh Khara, chairman of SBI said, “Around 50% of our home loan book is to non-salaried customers which belong to the SME segment,” “The slippages are largely because of the disruption in the SME segment.” He also said, “SBI is expecting a credit growth of 9% during this financial year. The under-utilization of credit lines by borrowers in our corporate clients group has dropped to 25%,” Khara said. “That’s a positive,” he added.
SBI says that the bank is gearing up on several fronts to mitigate all the challenges posed by the spread of the COVID-19 pandemic.
Another reason also is that we are doing prime home loans, which has hardly any delinquency. Don’t go by this quarter provisions, we recognised early because of the nature of our stiff provisioning policy.
IDFC First Bank expects the government to prevent a duopoly in the telecom sector, MD & CEO V Vaidyanathan tells Shritama Bose. The lender expects its credit costs to taper off over the years, he says. Edited excerpts:
Loan growth has been anaemic for the whole industry for a while now at 5-6% levels. You have grown at 9%. What is driving that?
The main thing is that we’ve started home loans, and that was the biggest driver of growth. A quarter ago, we brought down the interest rate on savings accounts from 6% to peak rate of 5%. Therefore, we have suddenly become competitive in the prime home loan segment.
Q1 was a difficult quarter for collections. Are you seeing a pullback thereafter?
After mid-June, we have been seeing a sharp recovery in the collections. In pre-Covid February 2020, the collection level was 98.8% and in July 2021 collections in the early bucket have risen to 99.4% … That is why we are guiding that our provision numbers will be coming down to just 2% of the advances going forward, below pre-Covid levels, which would be pretty good. Another reason also is that we are doing prime home loans, which has hardly any delinquency. Don’t go by this quarter provisions, we recognised early because of the nature of our stiff provisioning policy.
Retail distress has risen in Q1 mainly because of lower collections. Could the distress be more entrenched for some households?
No. If that were the case, how could our early or current bucket collections have come back to the 99.4% level after the Covid second wave? The cash flows of customers were affected, once their cash flows came back, they began to honour the instalments.
There is concern around a telecom company which is not stressed, but has sent out rescue calls to the government. How are you dealing with that exposure?
We believe the government will try to work out some solution to keep it a viable industry and it won’t become a duopoly for India’s sake. We were transparent about this account, we identified it early, and have a provision of Rs 487 crore on this account already. Our capital adequacy is already 15.6%. So, theoretically, just to simulate, even if we charge the entire 100% on the funded exposure of Rs 2,000 crore, our capital adequacy will still be very strong at around 14.7%. Not that we intend to do that, but just to simulate, even if it did get there, we are prepared. We have a very profitable incremental business. One day all these issues will become history.
What is the profitability outlook?
We have been profitable for the last five quarters. Last quarter, we hit the highest ever core pre provisioning operating profit of Rs 601 crore in the history of the bank, which is more than double since the merger. This despite adding 400 branches, 600 ATMs, hiring 12,000 employees, launching credit cards, salary accounts, fast tags, Fleet cards, building the technology layer, and growing Rs 50,000 crore of retail liabilities … So obviously, the incremental lending is very profitable, which is buffering these investments in liabilities. As the past issues go away, you will see it more in the profits line.
But there have been too many issues in infrastructure?
Yes, that’s the nature of any infra DFI (development finance institution). Whether Dewan, Reliance Infra or this telecom, they are all legacy businesses. Not a single new corporate account booked post-merger is even in SMA1 in the last two-and-a-half years.
This conversion from the DFI has taken too long.
You ask Mr. (KV) Kamath how hard it is. He is the only other person that I know who has converted a DFI to a bank. By the time you raise new low-cost retail liabilities, replace the high-cost liabilities and run off old loans, it takes years, and meanwhile it drags profit down. Even today, we are carrying Rs 27,500 crore of infrastructure and other past borrowings where we are paying 8.6%, which we will replace with sub-5% and save about Rs 1,000 crore a year. That’s why it takes time. But once done, this will be an amazing institution. All issues, whether infra or the telecom, will go away today or tomorrow.
One of the options being floated is that banks take over the company.
We are not even thinking along those lines. We are holding bonds. We have dealt with many things in our life, we will deal with this situation also.
Financial Express is now on Telegram.