IDFC first bank update and a look
at CASA% (Q2 FY21)
Article published as on Monday, 2nd November, 2020
at 6:30 a.m.
(This
is a follow up article of my previous article)
IDFC first bank came up with its
second quarter numbers on Friday, 31st October 2020 at 8:30 p.m.
And apart from the general things
likes 101 crores of PAT, and
reversal of provisioning and doing new COVID provisioning, and the improvement
in NIM, what caught my attention is the CASA
ratio of the bank,
And
it’s whopping 40.37%
How? 6 quarters ago I knew it wasn’t
even 15% of the total deposits.
I tried to find out the reasons
for this because this achievement is remarkable as the CASA is usually the
source of low cost funding for the bank here is my study.
Data
set 1
|
Quarter |
|
|
CASA/deposits |
Deposits |
borrowings+ deposits |
|
Mar-19 |
|
|
11.40% |
70,479 crores |
1, 22,497 crores |
|
Sep-20 |
|
|
40.37% |
69,368 crores |
1, 40,462 crores |
And an anomaly which I found out
which contributed to the fast growing CASA deposits is here:
Data
set 2
Interest
rates on Savings account
The policy of IDFC first bank is
to provide 6% interest up to first one
lac.
And thereafter 7% interest on the amount above 1 lacs up
to 10 crores.
(Source
link here on the website as on 31st October 2020)
Now the interesting part is to
see how much IDFC first provides on bank FD’s
Interest
rates on fixed deposits.
7 - 14 days 2.75%
15 - 29 days 3.00%
30 - 45 days 3.50%
46 - 90 days
4.00%
91 - 180 days ` 4.50%
181 days – less than 1 year 5.25%
1 year – 499 days 5.75%
500 days 6.00%
501 days – 2 years 5.75%
2 years 1 day – 5 years 5.75%
5 year 1 day - 10 years 5.75%
(Source
link here is the pdf link, rates applicable W.e.f from 15th September
2020)
If you look at major banks such
as HDFC bank or SBI the interest rates on fixed deposits are higher than
interest rates in savings account.
But in IDFC bank we see such an anomaly where the interest rates
on savings account > fixed
deposits.
This is actually misrepresentation and artificially boosting of CASA
%.
As obviously any person will be
depositing money in savings account with 6% / 7% interest rates, instead of
opening a fixed deposit.
(Some people may perceive risk in IDFC bank as they think the bank is luring people with high interest rates on savings account, but as I wrote in my previous article of AGM about their policy which is customer first & safety first, so they should not be worried as the bank is offering high rates to customers to build up their CASA percentage)
Instead of taking it as a red
flag, this
seems strategic move in order to attract and improve CASA, right
now the CASA is not a low cost funding for them going forward this CASA will be
very helpful.
Conclusion:
With such a strategy it seems
that by the end of this financial year 2021 or by the 1st quarter of
FY22 their CASA ratio would have crossed 50%.
(Let me
know down in the comments, will the bank be able to achieve this, also your
thoughts on this anomaly of interest rates in the bank.)
They already have among the best
CASA ratios today, but I see it improving further in coming quarters.
The above mentioned anomaly where
rates on savings account are higher than fixed deposits, might stay for few
more quarters but sometime in future it has to go, otherwise it would be
artificial boosting of CASA and then we could not rely on those numbers as
well.
in my last article of IDFC first
bank’s AGM (link
here), I said I would like to wait few quarters to see its performance, and
today I see improvements taking place, it seems they are doing their ground
work, making a strong base for future growth, it may take a few more quarters
then they will be ready for generating wealth for shareholders.
Stock
name: IDFCFIRSTB stock price: 30.65 rs
Stock
code: 539437 market cap: 17385.76 crores.
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