idfc bank ltd Management discussions
GLOBAL MACRO-ECONOMIC ENVIRONMENT
The financial year 2022-23 could be marked as the year of global monetary policy tightening in response to the surge in inflation pressures. Central banks used a combination aggressive pace of rate hikes and quantitative tightening to reign-in inflation. The surge in inflation was caused by a combination of unprecedented stimulus in DMs combined with supply-side disruptions caused by COVID-19. The US Fed which led the charge against inflation, has hiked policy rates by 500bps since 2022 and has initiated quantitative tightening. Despite the aggressive dose of monetary policy tightening, inflation in the US has taken longer than expected to moderate with Headline CPI inflation slowing to 5.0% as of April 2023 from peak levels of 8.9% (June 2022). Core inflation has been sicky, showing a slower pace of deceleration to 5.5% as of April 2023 from peak levels of 6.6% (September 2022). The persistence in core inflation reflects a combination of exceptionally strong labour market and growth remaining resilient despite policy tightening. The labour market in the US remains out of balance with demand for labour exceeding supply by 4mn. As a result, unemployment rate continues to remain below long-term average and wage growth remains elevated. This implies that the Fed will need to maintain policy rates higher for longer to get inflation down towards target levels, especially core inflation.
That said, the Fed rate hiking cycle is towards its end with financial stability risks rising in small US banks in March 2023. The crisis was caused by a combination of surge in UST yields and lack of risk management in a few small banks. Monetary policy response has been to use different instruments to address price stability and financial stability risks. Rate hikes remain a function of inflation-growth outlook, with the Fed continuing to hike policy rates in May 2023. To address financial stability risks, the Fed announced a lending facility for banks (Bank Term Funding Program) to meet the needs of their depositors and the eligible collateral will be valued at par. Initial signs indicate that the financial stability risks remain contained with deposit outflow from small US banks subsiding and bank borrowings from the various Fed facilities also reducing. However, the crisis has resulted in credit standards tightening significantly and there are initial signs of credit growth slowing. The tighter credit standards are likely to act as an additional dose of tightening and growth conditions in the US are likely to weaken further. This also implies that the Fed doesnt need to be as hawkish as earlier feared. This was also reflected in the softer forward guidance in the May Policy which indicates future policy path will be data dependent, taking into account impact of past rate hikes, as well as financial stability risks.
DOMESTIC MACRO-ECONOMIC ENVIRONMENT
Post Covid-19, growth recovery in India remained on a strong footing with Q4-FY23 GDP growth exceeding expectation at 6.1%, with recovery spread across sectors - services, industries and agriculture. In contribution terms services sector led the growth recovery, reflecting normalization in consumption patterns and urban demand. Contract intensive services sector ‘trade, hotels and transportation which was impacted most by the lockdowns, has seen steady recovery with growth at 9.1%YoY in Q4-FY23. Strong growth in urban consumption has supported services sector growth, likely reflecting recovery in tourism sector as indicated by growth in revenue per available room and individual travel. The sharp reduction in input cost pressures supported Manufacturing sector company profits in Q4-FY23, countering the moderation in sales growth. A gradual recovery is visible in the capex sector, supported by central government capital expenditure and improving capacity utilization in the manufacturing sector. The drag from net imports has reduced in H2-FY23 with reduction in imports countering the weakness in exports. For the full year FY23 GDP growth was stronger than expected at 7.2%.
The revival in bank credit growth which had been initially spurred by growth recovery post Covid-19 shock and low interest rate environment, proved resilient despite tightening in credit conditions. Bank credit growth rose to 15.0% as of March 2023 from 8.6% as of March 2022, supported by strong urban recovery. The latter was a reflection of robust urban wage growth which is proxied from listed company labour cost, which grew at an average pace of 17.1% in FYTD23 (till December). Sectoral detail reveals strong growth in retail credit which improved to 20.6% as of March 2023 from 12.6% in FY22. Improvement is also seen in services credit growth which improved to 19.8% and industry credit growth to 5.7%, as production activity picked-up. The improvement in commercial sector credit (Industry and services) is led by both term loans and working capital. Meanwhile, deposit growth has held broadly steady at 9.6% as of March 2023 from 8.9% in FY22, as a result the ratio of credit-to-deposit improved back towards pre-pandemic levels at 75.8%.
RBI pauses in April 2023 with inflation expected to remain within target range
While growth conditions had held-up, the inflation situation has been volatile, with headline CPI inflation surging to 7.8% in April 2022, led by broad-based increase in food, core and fuel inflation. The RBI had initiated policy normalization in April 2022 by narrowing the policy rate corridor with the introduction of SDF which replaced reverse repo and followed it up with an off-cycle policy rate hike in May 2022. In FY23, RBI has hiked repo rate cumulatively by 250bps in FY23. Even before the rate hike cycle began RBI had stopped net OMO purchases (quantitative easing) in August 2021.
The combination of tighter monetary policy, reduction in global commodity prices and normalization in supply chains resulted in moderation in CPI inflation to 6.2% in H2-FY23 from 7.2% in H1. The improvement was led by lower food inflation and supportive base-effects. Food and beverage inflation softened to 5.7% in H2-FY23 from 7.7% in H1, aided by seasonal decline in vegetable prices. There are large variations within food inflation with 59% of the sub-components by weight seeing inflation greater than 6%. Cereals inflation in particular have been a key driver of food inflation, contributing more than 40% share. The uneven monsoon distribution had impacted kharif production in FY23 which was lower by 0.2%, however overall food grain production was higher by 4.7%. There was also the issue of computation which resulted in marginal overstating of cereals inflation in January 2023. The Centre had made all subsidized food grains under National Food Security Act, free from January 2023 onwards. A few states had not implemented the changes in January itself, while other states had. This resulted in overall cereal index being overstated than the weighted sum of the subcomponents.
Meanwhile, core inflation (CPI ex. Food, fuel and tobacco) remained sticky averaging at 6.2% in H2-FY23 v/s 6.4% in H1-FY23. The stickiness in core inflation was due to rising pricing power of producers and normalization in consumption patterns towards services. The reduction in input pressures on producers is reflected in industrial input cost inflation (calculated from WPI) moderating to 10.0% in H2-FY23 from 27.2% in H1. However, output prices have moderated at a slower pace, reflected in non-food manufacturing WPI inflation moderating to 2.6% in H2 v/s 9.2% in H1. Continued growth in consumption has supported producer pricing. Consumption patterns which had got skewed towards goods during the pandemic have now normalized towards services. As a result, core CPI services inflation has remained sticky.
Globally, inflation pressures had eased with supply chains normalizing and commodity prices off their peaks. Indian crude basket prices softened to US$83.2pb in H2-FY23 from US$103.7bn in H1, driven by global growth weakness and global monetary policy tightening. Metal prices stabilized towards the end of FY23 as China removed Covid-19 restrictions.
In April 2023, RBI paused marking the end of the rate hiking cycle. The decision to pause was driven by heightened financial stability risks facing the global economy and assessing the impact of the past rate hikes. The volatility in DM banks is expected to temper global growth outlook via expected tightening in credit conditions. This implies that the Fed may not need to be as hawkish as earlier feared with tighter credit conditions acting as an additional dose of tightening. This was also reflected in the Feds forward guidance which indicated just one more hike in May 2023. Domestically, in RBIs assessment significant dose of policy tightening has been delivered with weighted average call rate rising by 3.2% since March 2022 and policy rates rising by 2.9%. The MPC now wants to assess the impact of the past rate hikes on growth and inflation outlook.
Interbank liquidity conditions are expected to remain comfortable in H1-FY24 with balance of payments remaining closer to neutral with current account deficit expected to reduce in FY24. Moreover, the withdrawal of Rs. 2000 notes is expected to provide transient liquidity boost till H1-FY24. The policy stance was retained as withdrawal of accommodation, indicating that monetary policy focus remains on reducing inflation on a durable basis. Moreover, the RBI Governor indicated that RBI remains ready to act if the situation warrants, not ruling-out further rate hikes if needed. Looking ahead, RBI is likely to remain on a prolonged pause till December 2023. The threshold to hike rates remains high with Headline CPI inflation expected to remain within the target band in FY24, assuming normal monsoons.
10-yr G-sec yields rise to 7.31% as of March 2023
In FY23 the upward pressure on yields was more pronounced in H1, with 10-yr yield peaking at 7.6% as of June 2022, driven by monetary policy tightening, surge in inflation pressure, higher global yields and revival in bank credit growth. In H2, the pressure on yields tempered with 10-yr yield ending the Financial Year at 7.31%. Globally also moderation in yields was seen as market focus shifted from inflation to expected growth weakness. UST 10-yr yields reduced from 4.2% as of Oct 2022 to 3.5% as of March 2023, reflecting market expectations of rate cuts in H2-FY23 due to growth concerns in the US and moderation in inflation pressures. The crisis in small US banks in March 2023, further intensified the drop in UST yields with the expected tighter credit standards adding to downside risks to growth.
The moderation in global yields was one of the supportive factors which enabled moderation in g-sec yields in H2-FY23. Moderation in domestic inflation pressures also provided market comfort with Headline CPI inflation slowing to 5.7% in March 2023 from peak levels of 7.8% in April 2023. The moderation in inflation pressures also provided clarity that RBI rate hiking cycle was over with inflation expected to stay within the target band (4% ? 2%) in FY24. Indeed, CPI inflation further moderated in 4.7% in April 2023. Another supportive factor was that demand supply dynamic for g-secs was better than expected. State governments borrowed lesser than the amount indicated in calendar by Rs. 2.4tn in FY23, with gross SDL issuance at Rs. 7.6tn. This created space to absorb the large g-sec issuance (gross) of Rs. 14.2tn in FY23. Corporate bond issuances also saw a moderate increase in FY23, which was the other supportive factor on the supply-side.
On the demand-side interbank liquidity was in surplus for majority of FY23 with the exception of February and March 2023, when system liquidity was a mild negative. The g-sec borrowing program was completed by February 2023. For the year FY23, system liquidity average at Rs. 1.6tn, which was much lower than last year (Rs. 6.5tn in FY22). The prevalence of surplus liquidity for majority of FY23 (though much lower), kept bank demand supportive with investment in government security at 28.3% of NDTL as of March 2023 v/s 27.6% of NDTL as of March 2022. The extension of enhanced HTM limits to FY24, also supported bank demand.
The rising prominence of long-only players such as insurance, PFs and pensions also supported g-sec demand with ownership rising to 36.5% (outstanding g-secs) as of Q3-FY23. The Covid-19 shock has supported formalization of the economy with the formal sector able to manage the lockdowns better and had access to easy funding condition. Moreover, there has been a change in household allocation of financial assets towards provident and pension funds.
Towards the end of FY23, the changes in taxation resulted in the yield curve flattening. Effective from FY24, insurance premiums above 5 lac for guaranteed return schemes will be taxable. Long-term debt mutual funds will be taxable at par with Bank deposits, effective from FY24. As a result, in the last month of FY23 large inflows were seen as investors wanted to lock-in the tax benefits before the fiscal year ends, resulting in the yield curve flattening. The taxation of insurance premiums will impact demand for ultra-long bonds, while taxation of MF will impact the 3yr to 5yr point in FY24.
USDINR: Depreciation pressures rise in FY23
In FY23, INR depreciated against the USD by 8.4%, reflecting dollar strength and rise in current account deficit in FY23. The performance over the year hides the volatility which was seen in currency markets globally. The DXY lost much of strength in H2-FY23, depreciating by 8.9% to 102.5 by March-end 2023. The depreciation in H2 was led by inflation pressures in the US easing and market continuing to expect Fed rate cuts in the second half of 2023 (calendar year), on expectations of deterioration in growth conditions. These expectations got further reinforced with rise of financial stability risk in small US banks. Resulting in 2yr UST yields falling to 4.0% in March- end 2023 from 4.3% in September-end 2022. As mentioned above, monetary policy response has been to use different instruments to address price stability and financial stability risks. Rate hikes remain a function of inflation-growth outlook, with the Fed continuing to hike policy rates in March 2023. However, the crisis has resulted in credit standards tightening significantly, which could weaken growth conditions further in the US. This also implies that the Fed doesnt need to be as hawkish as earlier feared.
Despite substantial dollar weakness in H2-FY23, the INR didnt benefit, depreciating by 1% in H2-FY23 to 82.2 as of March- end 2023. The weakness was despite improvement in external accounts with current account deficit reducing to 2.2% of GDP in Q3-FY23 from 2.9% deficit in H1. The reduction in current account deficit was led by lower trade deficit, rise in services surplus and remittances. Trade deficit reduced to US$126bn in H2 from US$141bn in H1, led by lower imports. The moderation in imports reflects reduction in commodity prices and moderation in domestic demand. Meanwhile, services surplus surged to US$79.6bn in H2 from US$62.7bn in H1, reflecting strong growth in software services and professional services. Remittances surged to a historical high at US$38.3bn in Q3-FY23. The US is now a key source of remittances to India while the share of GCC has fallen, reflecting the adverse impact of Covid-19 on low skilled labour.
The lack of benefit to the INR in H2-FY23, reflects that during dollar strength period the INR hadnt weaken as much partly due to RBI intervention. The second factor is reducing interest rate differentials. The Fed rate hiking cycle has been much more aggressive resulting in the policy rate gap between India and US reducing to historical lows. Moreover, during periods of global risk-off sentiment, EM currencies such as INR dont benefit much. At the same-time RBI used periods of INR strength to build FX reserves (purchase dollars), limiting downward move in USDINR.
FINANCIAL SUMMARY
Following the merger in December 2018, the NBFC crisis in 2019, and the years impacted by COVID-19, FY23 marked a full, normalized year of operation for IDFC FIRST Bank. This period has been a transformative journey, reflected by the banks commendable operational and financial performance for the year.
The global macro-economic crisis brought about high inflation in various developed economies including the US and European regions, triggering interest rate hikes across these territories. India echoed these actions, despite a more stable GDP growth, credit and deposit growth, and more manageable inflationary pressures compared to other economies. Consequently, the repo rate was raised by 250 bps since May 2022, increasing the cost of funds for the system.
Nevertheless, credit growth remained strong throughout the year, driven by steady demand from consumer and SME segments. The increase in the repo rate led most banks, including IDFC FIRST Bank, to raise deposit rates. With deposit growth system-wide lower than credit growth, the competition to attract deposits remained intense.
Despite these challenges, IDFC FIRST Bank consistently attracted customer deposits throughout FY23, with a year- on-year growth of 47%, compared to a 24% growth in overall funded assets. Alongside traditional banking services, FY23 saw significant regulatory initiatives in digital banking and digital payment spaces, including Central Bank Digital Currency (CBDC), ONDC, UPI Platform for Foreign Nationals, with the Bank being selected to participate.
The Banks net interest income grew by 30% YoY due to strong margins, driving a 35% YoY growth in core total income (excluding trading gains) for FY23. The bank improved its cost-to-income ratio from 77.79% in FY22 to 72.54% in FY23, reflecting robust business growth and improved operational efficiency.
Continued growth in core income and operational efficiency resulted in a strong 67% YoY growth in core operating profit (excluding trading gains), from Rs. 2,753 crore in FY22 to Rs. 4,607 crore in FY23. The pre-provisioning operating profit as a percentage of total average assets stood at 2.14% in FY23 from 1.61% in FY22.
Following the COVID-19 period, the Banks asset quality has consistently improved quarter-by-quarter, driven largely by retail, rural and MSME finance segments. The Gross NonPerforming Assets (GNPA) and Net Non-Performing Assets (NNPA) in these segments improved from 2.63% and 1.15% as of March 2022, to 1.65% and 0.55% as of March 2023, respectively. A robust underwriting framework and efficient collections strategy have enabled the Bank to decrease net credit loss as a percentage of average funded assets from 2.53% in FY22 to 1.15% in FY23, aligning with managements guidance of keeping it below 1.50% for FY23.
These improvements consistently boosted net profitability every quarter throughout FY23. Net profit increased from Rs. 343 crore in Q4-FY22 to Rs. 803 crore in Q4-FY23, resulting in an annual profit of Rs. 2,437 crore in FY23, a considerable increase from Rs. 145 crore in FY22.
This upward trajectory also led to a significant improvement in the Banks Return on Assets (ROA), rising from 0.08% in FY22 to 1.13% in FY23. Similarly, the Return on Equity (ROE) improved from 0.75% in FY22 to 10.95% in FY23. FY23 has been a landmark year for IDFC FIRST Bank, achieving over 1% ROA and 10% ROE following challenging years postmerger and the impacts of the COVID-19 crisis.
The Bank maintained robust capital adequacy and a liquidity coverage ratio throughout the year, far exceeding regulatory requirements. This fiscal prudence positions the Bank well for future growth.
IDFC FIRST Bank remains committed to operational efficiency and profitability, leveraging its solid business model with a strong liability franchise, diversified & granular asset portfolio, robust asset quality, digital innovation, a "customer first" ethos, and high corporate governance standards. Having overcome legacy issues, the Bank is now at an inflection point, poised to consistently deliver improved results in the future.
Deposits
In FY23, the Reserve Bank of India (RBI) responded to global macro-economic turmoil and high inflation by increasing the repo rate by 210 basis points in six tranches from May 2022 to March 2023, mirroring the US Federal Reserves 500 basis points interest rate hike. This development inevitably led to a rise in deposit rates across India, heightening competition.
Even amidst this rigorous competition, the Bank managed to amass Rs. 43,597 crore of customer deposits during FY23, a 47% YoY growth, increasing from Rs. 93,214 crore as of March 31, 2022, to Rs. 1,36,812 crore as of March 31, 2023. This surge was primarily driven by a 53% YoY growth in granular retail deposits, rising from Rs. 68,035 crore to Rs. 1,03,870 crore during the same period.
FY23 posed a challenge for the industry in terms of CASA (Current Account, Savings Account) mobilization due to increase in interest rate. However, IDFC FIRST Bank saw an increase of Rs. 20,812 crore in CASA deposits during FY23, representing a 41% YoY growth from Rs. 51,170 crore as of March 31, 2022, to Rs. 71,983 crore as of March 31, 2023. Notably, the Banks current account deposits increased by 58% YoY, and savings account deposits rose by 37% YoY in FY23.
The Banks term deposits also experienced significant growth, increasing by Rs. 22,785 crore in FY23, a 54% YoY growth, from Rs. 42,044 crore as of March 31, 2022, to Rs. 64,829 crore as of March 31, 2023. This expansion was predominantly driven by the mobilization of granular retail term deposits, which increased by Rs. 19,022 crore, or 87% YoY in FY23. Retail term deposits now constitute 63% of overall term deposits as of March 31, 2023, compared to 52% as of March 31, 2022.
Further solidifying its financial position, IDFC FIRST Bank reduced its reliance on Certificates of Deposit by 37%, decreasing from Rs. 12,420 crore as of March 31,2022, to Rs. 7,826 crore as of March 31, 2023. Consequently, the Banks overall deposits, including CASA, Term Deposits, and Certificates of Deposit, expanded by 37% YoY in FY23, growing from Rs. 1,05,634 crore as of March 31, 2022, to Rs. 1,44,637 crore as of March 31, 2023.
Despite slowdown in overall deposit growth across the banking system, IDFC FIRST Bank managed to maintain a CASA ratio of 49.77% as of March 31, 2023. This figure ranks among the higher CASA ratios within the private sector banks in India. The Bank has successfully maintained its CASA ratio around 50% for the last three years.
Borrowings
In FY23, total borrowings, excluding money market borrowings, experienced a modest YoY growth of 2%, rising from Rs. 39,382 crore as of March 31, 2022, to Rs. 40,292 crore as of March 31, 2023. Consistent with the Banks strategy, IDFC FIRST Bank reduced its high-cost legacy borrowings, including longterm bonds, infra bonds, and high-cost refinancing loans, by a significant 30% YoY. These figures declined from Rs. 25,180 crore as of March 31, 2022, to Rs. 17,673 crore as of March 31, 2023.
On the other hand, the Bank increased its new refinancing portfolio, backed by lower-cost retail loan assets, from Rs. 10,541 crore as of March 31, 2022, to Rs. 18,176 crore as of March 31, 2023. In FY23, the Bank also successfully raised Rs. 1,500 crore of additional tier-2 capital through the issuance of tier-2 bonds to prominent domestic institutional investors.
Network
The Bank has made significant expansions during FY23, with the addition of 168 new branches and 206 new ATMs. As of March 31, 2023, the Banks network encompasses a total of 809 branches and 925 ATMs across the country. Furthermore, the Banks wholly-owned subsidiary, IDFC Bharat Limited, operates 614 branches, primarily focused on sourcing microfinance loans in rural areas. This subsidiary plays a crucial role in extending financial services to underserved communities in remote regions.
Recognizing the importance of digital transformation, the Bank has invested in robust digital capabilities to enhance efficiency and elevate the customer experience. It remains committed to further developing its digital infrastructure in the future. Moreover, the Bank has plans to continue expanding its branch network in different regions of India, adapting to the specific requirements of each geography. By doing so, it aims to strengthen its presence and better serve its customers across the nation.
Funded Assets
Total Funded Assets, which include advances, credit investments, and PSL buyouts, net of Inter-Bank Participation Certificates (IBPC), increased by 24% year on year to Rs. 1,60,599 crore as of March 31, 2023, compared to Rs. 129,051 crore as of March 31,2022. The growth in overall funded assets for the fiscal year 2022-2023 was driven by steady momentum in various retail, rural and MSME finance products, as well as non-infrastructure corporate loans. The legacy infrastructure finance portfolio continued to decrease through normal book run-off.
Among the different retail and commercial financing product segments, products with a high vintage experienced steady growth, while new segments like credit cards, digital loans, and gold loans registered comparatively higher growth due to the low base effect. The Bank introduced prime home loans in 2021, which became a key driver for the growth in the overall home loan portfolio. This Home Loan portfolio increased by 39% year on year to reach Rs. 19,552 crore as of March 31, 2023, accounting for 12% of the overall funded assets.
The Loan Against Property (LAP) portfolio grew by 16% in the second half of the fiscal year 2022-2023 compared to 7% in the first half, resulting in an overall year-on-year growth of 11% for the fiscal year to reach Rs. 20,199 crore as of March 31, 2023. The Bank experienced a strong growth of 53% in the wheel segment, reaching Rs. 14,823 crore as of March 31, 2023.
In the Consumer Loans segment, the portfolio grew by 20% year on year to reach Rs. 20,819 crore. This portfolio also includes education loans, launched in early 2022, with a portfolio of Rs. 933 crore by March 31, 2023. The Bank has been steadily scaling up its gold loan business, which was launched in the last two years. The rural finance portfolio of the Bank grew by 48% to reach Rs. 19,181 crore as of March 31, 2023. This growth was primarily driven by strong growth in Kisan Credit Cards (KCC), tractor loans, and steady growth in microfinance through joint liability group (JLG) portfolios, which now contribute to 55% of the overall rural portfolio.
As a universal bank, IDFC FIRST Bank strengthened its product offerings for the SME segment with products like Business Banking, Business Instalment Loans, Micro Business Credit, Trade Credit, Commercial Vehicle, and Construction Equipment Loans. Some of these products were launched in the last two years. The Business Banking, Commercial Vehicle, and Construction Equipment portfolio now contribute to 55% of the overall commercial portfolio.
As per the strategic plan disclosed during the merger in December 2018, the Bank has been reducing its long-term legacy large ticket corporate and infrastructure financing book. Instead, it has been focusing on good quality corporate credit at lower ticket sizes, primarily in terms of working capital loans or term loans. The non-infrastructure corporate loan book grew by 9% year on year in the fiscal year 2022-2023, reaching Rs. 25,894 crore as of March 31, 2023. This growth was driven by new credit provided to emerging corporates and the financial services sector, which grew by 19% year on year. The emerging corporate and financial service financing portfolio now contribute to almost 90% of the overall noninfrastructure corporate book as of March 31, 2023. The legacy infrastructure financing portfolio decreased by 32% in the fiscal year 2022-2023, reaching Rs. 4,664 crore through normal runoff. It accounted for 2.90% of the overall funded assets as of March 31, 2023. The Bank reduced the PSL Buyout and Rural Infrastructure Development Fund (RIDF) by 30% and 22% respectively during the year, while security receipts decreased by 77% in the fiscal year 2022-2023. Overall, the wholesale banking book, including corporate loans, infrastructure financing, PSL buyout, RIDF investments, stressed equity, and security receipts, decreased by 6% in the fiscal year 20222023.
IDFC FIRST Bank has built strong capabilities and foundations, including a diversified granular product portfolio with strong asset quality, customer-friendly processes, robust credit underwriting, efficient collection machinery, and digital innovations. These factors will drive the Banks growth going forward, catering to different customer segments such as urban and rural consumers, entrepreneurs, SMEs, and corporates across the country. With strong regulatory frameworks and ongoing digital innovations and interventions by government bodies, the Indian credit market, especially for consumers and SMEs, is expected to experience steady growth. IDFC FIRST Bank, with its capabilities and competitive strengths, is well- positioned to participate in this growth journey.
Asset Quality
During the year FY23, IDFC FIRST Bank made steady improvement in its asset quality, primarily driven by the improvements of NPA ratios in the retail, rural and MSME financing segment which forms the majority in its advances book. At the same point of time, the Bank has significantly improved its provision coverage ratio in the retail, rural and MSME finance segment as well as for the overall advances at the bank level including the corporate loans and legacy infrastructure book.
The improvement in the asset quality was driven by improvement in the Loan Underwriting standards focusing on better customer profiles; improvement in the overall bounce rates, especially for the recent sourcing; improvement in collection efficiencies and recovery and improvement in early delinquency buckets as depicted by Vintage Analysis. The Bank continues to onboard high-quality customer with good credit bureau history. The Bank proactively tightened the credit policies across different product segment and proper customer selections and it has resulted in the improvement of early bounce rates which have improved from 10.0% pre-COVID period and 7.0% as of March-22 to 6.6% in March-23, which is now the lowest ever early bounce rate and resulting in highest ever credit quality over the last 5 years. The Bank maintained high collection efficiency throughout the quarters in FY23. The early bucket collection efficiency was maintained at 99.6% by the end of March 2023. The collection efficiency is calculated as the following - the total EMI collected in the month (excluding EMI arrears and prepayments), as % of total EMI due in that month. In retail, rural and MSME financing portfolio, this has helped the bank to significantly reduce the SMA ratios (SMA book as % of the total retail, rural and MSME finance portfolio). SMA ratio, especially SMA 1 (31-60 days overdue) and SMA-2 (61-90 days overdue) are the indication of the NPA formation in the near future. The Bank has improved the SMA1+SMA2 ratio from 2.2% as of March 31, 2022 to 1.1% as of March 31, 2023.
All the factors as mentioned above played significant role to improve the NPA ratios of the Bank. The Gross NPA (GNPA) ratio of the Bank improved by 119 bps in FY23, from 3.70% as on March 31, 2022 to 2.51% as on March 31, 2023. The Net NPA (NNPA) ratio of the Bank improved by 67 bps in FY23, from 1.53% as on March 31, 2022 to 0.86% as on March 31, 2023. Provision coverage ratio (including technical write-off) of the Bank increased by 999 bps in FY23, from 70.29% as on March 31, 2022 to 80.29% as on March 31, 2023.
The Gross NPA% of the retail, rural and MSME finance book improved by 98 bps in FY23, from 2.63% as on March 31, 2022 to 1.65% as on March 31, 2023. The Net NPA % in this segment improved by 60 bps in FY23, from 1.15% as of 31 March 2022 to 0.55% as on March 31, 2023. The Provision Coverage Ratio (including the technical write-off) of the retail, rural and MSME lending segment has also improved by 1,285 bps in FY23, from 69.59% as on March 31, 2022 to 82.43% as of March 31, 2023.
For the wholesale financing book, the Bank continues to improve on asset quality as the incremental underwriting process remains prudent and stringent. The Bank has reduced the concentration risk in the wholesale portfolio in a significant way. As a proactive strategy, the exposure to top 20 single borrowers has been reduced from 16% as of March 31, 2022 to 7% as of March 31, 2023. Further, the exposure to top 5 industries also has also been reduced from 41% as of March 31, 2022 to 22% as of March 31, 2023 which has further strengthened the balance sheet. The legacy infrastructure financing book has been brought down from 5% of the overall funded assets as of March 31,2022 to 3% of the overall funded assets as of March 31, 2023.
In the non-infra corporate book, the Gross NPA was at 2.87% as of March 31, 2023 as compared to 2.75% as of March 31, 2022 and Net NPA was at to 0.01% as of March 31, 2023 as compared to 0.31% as of March 31, 2022. The Bank improved the provision coverage ratio (including technical write-off) in this segment to 99.84% as of March 31, 2023 from 94.50% as of March 31,2022.
The legacy infrastructure financing portfolio is a run-down portfolio which was reduced by 32% during FY23, from Rs. 6,891 crore as of March 31, 2022 to Rs. 4,664 crore as of March 31, 2023. In this infrastructure financing segment, the Gross NPA was at 25.11% as of March 31, 2023 as compared to 21.64% as of March 31, 2022 and Net NPA was at 15.73% as of March 31, 2023 as compared to 11.76% as of March 31, 2022. The Gross NPA in infrastructure financing segment has reduced by 23% YOY, from Rs. 1,438 crore as of March 31, 2022 to Rs. 1,114 crore as of March 31, 2023. This includes a toll account which turned NPA during the COVID period but continued to pay its dues with a delay. In FY23, the total Bank received Rs. 137 core of payment from this account including Rs. 78 crore against the principal and hence the outstanding reduce by 9.80% in FY23, from Rs. 794 crore as of March 31, 2022 to Rs. 716 crore as of March 31, 2023, which forms 64% of the gross NPA in this segment. The Bank is confident of resolving this account in the near term. The provision coverage ratio (including technical write-off) in this legacy infrastructure financing segment has improved to 56.18% as of March 31, 2023 as compared to 51.73% of March 31, 2022.
As the legacy infrastructure book is a run-down book, without the same, the Gross NPA would be 1.84% and Net NPA would be 0.46% as of March 31, 2023 with provision coverage ratio (including technical write-off) at 86.85%.
The restructured pool of the Bank has reduced by 60% in FY23 and forms 0.59% of the overall funded assets as of March 31, 2023 as compared to 1.84% as of March 31, 2022. The Bank improved the net stressed assets including net NPA, net Security Receipts and net Restructured Assets as % of the total asset from 2.0% as of March 31, 2022 to 0.8% as of March 31, 2023.
With all the guardrails and initiatives in place as well the improving key indicators including the bounce rates, collection efficiency and the SMA ratios, the Bank is well placed to maintain its high asset quality and improve certain aspects further going forward as it gears for the steady growth in the near future.
Net Worth (Share Capital and Reserves & Surplus) & Capital Adequacy
The Banks net worth stood at Rs. 25,721 crore as on March 31, 2023 compared to Rs. 21,003 crore as on March 31, 2022. The Bank raised Rs. 2,196 crores of fresh equity capital by way of preferential issuance at 1.60x price to book on March 23, 2023. The book value per share stood at Rs. 38.86 as of March 31, 2023.
The Bank reported Capital Adequacy of 16.82% with CET-1 ratio of 14.20% as on March 31, 2023 as compared to 16.74% with CET-1 ratio of 14.88% as on March 31, 2022.
Profit and Loss Statement Net Interest Income
The Total Operating Income (Net Interest Income plus other revenues) of the Bank grew by 32% YOY from Rs. 12,928 crore in FY22 to Rs. 17,102 crore in FY23. The growth in the Total Operating Income included the 39% decline in the trading gains which was Rs. 325 crore in FY23 as compared to Rs. 531 crore in FY22. Excluding the same, the core operating income of the Bank increased by 35% from Rs. 12,397 crore in FY22 to Rs. 16,777 crore in FY23.
The Bank reported 30% growth in Net Interest Income (interest earned less interest expended) from Rs. 9,760 crore in FY22 to Rs. 12,635 crore in FY23 against the growth of funded assets at 24% YOY. The Net Interest Margin (Gross of IBPC and sell-down) for the year FY23 was 6.05% as compared to 5.86% in FY22. The increase in NIM% on YOY basis was a result of the increase in the repo rate by 250 bps in FY23 by the RBI.
In FY23, the Bank had a strong YOY growth of 54% in fee & other income, from Rs. 2,691 crore in FY22 to Rs. 4,142 crore in FY23. Fee Income growth was contributed primarily by the fees related to loan sourcing, higher transaction fees, distribution and wealth management fees etc.
The Bank intends to generate fee income through sale of insurance, mutual funds and other wealth management products to our customers including wealth management customers. The Bank has significantly expanded its Wealth management business last year. The Wealth management AUM has increased by 48% from Rs. 6,262 crores as on March 31, 2022 to Rs. 9,268 crores as on March 31, 2023. The Bank is a significant player in the FASTag and Toll Business. The bank has already issued 12 million FASTags as on March 31, 2023.
The fee & other income also included the fees obtained from the non-funded assets of our Bank. The non-fund based assets increased marginally by 3.6% from Rs. 21,692 crore as on March 31, 2022 to Rs. 22,465 crore as on March 31, 2023.
Operating Expenses
The operating expenses for the year ended March 31, 2023, were Rs. 12,170 crore, an increase of 26% YOY from Rs. 9,644 crore for the year ended March 31, 2022.
Compared to its large peers who have been around for 20-25 years, our bank has lesser vintage, and it had not yet developed the number of technology-based solutions for products and services which are essential for our customers, such as current account propositions, saving account solutions, launching new loan products like prime home loans, credit card, education loan, gold loans, tractor loans etc, revamping the mobile app, creating effective and efficient customer service units and so on. These investments are unavoidable as the Bank needed to grow the granular retail liability base to replace the bulk deposits and wholesale borrowings in order to de-risk the balance sheet.
During the last 4 years, our Bank has built many such capabilities which will help to shape up our future. The Bank launched advanced new Mobile App with state-of-the- art, unique features such as Google like search, Personal Finance management, customer service, Mutual Fund investing, ASBA-IPO facility, and many more. The Bank also launched contemporary wealth management solution with dedicated RMs, online MF research, PE investments, AIFs, PMS, paperless Demat account opening, offshore investment solutions, etc. The Bank launched best-in-class digital Cash Management solutions including mobile-based cheque scan, chatbot based auto-pay (e-NACH), corporate wallet solutions, API based working capital solutions. The Bank just launched its start-up banking programs with special features. The Bank launched integrated app for individual and business banking with single sign-on across trade workflow, forex rate booking, cash management and paperless working capital based on GST filing. For corporate banking customers, the Bank launched cutting-edge corporate banking portal with unique industry-first features such as single window experience, intelligent report builder capability, and unique online trade regulatory portal. In the toll & transit segment, the Bank was the first bank to launch ‘3-in-1 FASTag solutions with Tolling+Fuel+Parking on single Fastag with complete mobility solutions. Apart from these, the Bank also introduced revamped, easy, digital customer journeys for the retail loans with quick processing and attractive interest rates. The Bank had introduced many new products including credit card, gold loans, education loans, tractor loans etc. Specifically, the Credit Card product was launched with many differentiated customer features such as low and dynamic interest rates, never expiring reward points, zero annual renewal charges etc for which the necessary systems, technology, architecture, work flows, API connects required to be built. Further, as a new bank, the Bank also required to invest in developing the modern technology stack to be able to incorporate all the new products and services mentioned above which involved acquiring licenses, building core systems, enterprise service layers, integration with channels, API connects with external counter parties while taking care of the cyber and digital security aspects.
Retail businesses, both assets and liabilities, by their very nature, are opex intensive in their early stages. Since the strategy was to build a stable Bank with high level of granular retail deposits and low dependency on corporate deposits, the Bank launched large number of branches and ATM in order to raise the necessary retail deposits of the Bank. The Bank increased its footprints across India by opening 603 new Bank branches and 813 new ATMs (incl. Recyclers) since merger, out of which 168 branches and 206 ATMs were opened during FY23. The expansion of branches also has come with increased cost of employees. The employee count has increased by 23,096 employees during the last 4 years. Such increase in employee count was required largely in the liabilities side in order to raise deposits to the retire the high-cost legacy borrowings as they mature to reduce the dependency on short term certificate of deposits and bulky corporate deposits while growing the overall loan book. The newly launched businesses like credit cards, toll & transit businesses, retail liabilities have high cost to income ratio in their initial stages.
Despite the above essential investments that the Bank had to make to build the infrastructure and product propositions of the Bank, the cost to income ratio (on core income excluding the trading gains) for the bank reduced from 95.1% (pre-merger, Q2-FY19) to 77.79% in FY22 and further to 72.54% in FY23. In order to achieve such improvement in cost to income ratio, the Bank initiated a number of cost saving measures. There were multiple cross functional squads created to work on specific areas which included reducing administrative expenses like courier, printing, stationary, travel, technology and other such overhead expenses. Such consorted efforts over the last two years have helped the Bank in reinvesting such savings into productive measures and initiatives.
Going forward, as the businesses scale up, the increase of profitability for newly launched businesses like Credit Card, gradual replacement of high-cost legacy borrowing of Rs. 17,673 crores at 8.86% with the low-cost deposits and improving efficiency in the retail liabilities & branch banking, the cost to income ratio of the Bank is expected to come down meaningfully in the next two years.
Pre-Provision Operating Profit (PPOP)
The Bank followed a multipronged approach to increase core pre-provisioning operating profit (excluding the trading gains) in a sustainable way. The Bank scaled up the overall loan book and other fee-based businesses in a steady manner which increased the overall core revenues for the Bank. In FY22, the Bank reduced the interest rate in savings accounts up to Rs. 10,00,000 from 7.00% to 4.00%, a reduction of 300 bps. In FY23, impacted by the global macro situation, the repo rate was increased by 250 bps by the RBI and accordingly the overall interest rate for the deposits and loans went up across the industry. Despite such situation, the Bank kept the same 4.00% interest rate for the savings accounts up to Rs. 10,00,000 which helped the Bank manage the overall cost of funds and increase the net interest margin. In parallel, as explained in the section above, the Bank also undertook a large number of initiatives to manage the operating cost and bring efficiency, while making productive investments to improve its product and services propositions to its customers.
Such multipronged approach has resulted in the Core PreProvision Operating Profit (PPOP excluding the trading gains) growing by 67% YOY, from Rs. 2,753 crore in FY22 to Rs. 4,607 crore in FY23 while the funded assets (net of IBPC) of the Bank grew by 24% from Rs. 1,29,051 crore as of March 31, 2022 to Rs. 1,60,599 crore as of March 31, 2023. This establishes the improved operating efficiency and the inherent strength of the overall business model which would drive the profitability improvement going forward as the business volume grows.
The core PPOP of the Bank as % of the average total assets has improved to 2.14% for FY23 as compared to 1.56% in FY22. During the year FY23, the Bank continuously improved this ratio every quarter and the quarterly annualized core PPOP to average total assets for Q4-FY23, the exit quarter of FY23, was 2.33% as compared to 1.84% in Q4-FY22. Including the trading gain, the Pre-Provision Operating Profit (PPOP) increased by 50% YOY, from Rs. 3,284 crore in FY22 to Rs. 4,932 crore in FY23.
Provisions
The incremental provisions including provisions for NPAs, other stressed assets, standard assets as well as write-offs for the year ended March 31, 2023 was at Rs. 1,665 crore as compared to Rs. 3,109 crore in FY22. Overall provision as % of the total average funded assets improved from 2.53% in FY22 to 1.15% for FY23, which is well below the guided level by the management. Based on the current trend on asset quality parameters including bounce rate, underwriting quality and collection efficiency, the Bank is confident of maintaining credit cost as % of average total funded assets below 1.50% sustainably going forward.
Net Profit (Loss)
In terms of profitability, FY23 has been an inflection year for the Bank. The Bank posted a significant improvement in its net profit, from Rs. 145 crore for FY22 to Rs. 2,437 crore in FY23. The profitability persistently improved every quarter, from Rs. 474 crore in Q1-FY23, to Rs. 556 crore in Q2-FY23, to Rs. 605 crore in Q3-FY23 and Rs. 803 crore in Q4-FY23, driven by the strong improvement in the core PPOP and reduced credit cost levels. During the year, the Bank achieved the important milestone of reaching more than 1% ROA and 10% ROE. The ROA of the Bank improved from 0.08% in FY22 to 1.13% in FY23. Similarly, the ROE of the Bank improved from 0.75% in FY22 to 10.95% in FY23. The ROA and ROE of the Bank consistently improved every quarter during FY23. On quarterly annualized basis, the ROA for the exit quarter of FY23, i.e. Q4-FY23 was 1.41%, which increased from 0.76% in Q4-FY22. The ROE for the exit quarter of FY23, i.e. Q4-FY23 was 13.45%, which increased from 6.67% in Q4-FY22. Without the one-time income booked during Q4-FY23, the normalized ROA and ROE would have been 1.23% and 12.30% respectively, annualized for Q4-FY23.
The Bank is executing on the strategy to build a profitable retail lending book and reduce overall cost of liabilities with strong retail deposit growth. As the Bank achieves the scale in businesses, and as the legacy liabilities are paid off, the profitability ratios of the Bank would continue to improve further.
RETAIL LIABILITIES
FY 23 saw a major milestone being reached of 1 Lac crore Deposits. Liabilities Book witnessed a strong growth of over
55% Y-o-Y. With Customer First Approach Bank was able to build a competitive advantage and deliver superior customer experience. The Bank added 30 lac CASA accounts for the financial year. In FY23, the Bank overcame the challenging business conditions and offered customers convenient ways to transact, access their savings and current accounts, fixed deposits, make digital payments and grow their wealth.
Digital Capabilities as Business Drivers
While the Bank continued to invest across channels, including physical branches, lot of traction was observed from its enhanced digital capabilities. The Bank has continued to invest in digital platforms and improved "CUSTOMER FIRST" digital strategy on its new Net-banking and mobile app - IDFC FIRST Bank app. In this financial year, the Bank moved all of its mobile & net banking customers from the legacy systems to the new platform smoothly to help them experience the enhanced features. The Bank received positive response from its users over the new age designs and digital customer journeys.
Continuing to build and strength our digital proposition, the Bank introduced many new features for the customers -
• Enhanced inward remittance process
• New payments interface for seamless experiences
• Award winning Tap & Pay feature to simplify payment experience
• Enhanced security features like sim binding, unsecure wifi notifications etc to provide safe banking experience
In the new financial year, the Bank will continue to evolve and focus on new age designs and seamless customer experiences which will provide us meaningful opportunities for growth.
Retail Remittances
The Bank offers International payments (i.e sending money abroad and receiving money from abroad) to Individuals at competitive exchange rates and Zero fees. These services are Available in 13 Currencies.
We also offer Digital solutions such as ‘Pay Abroad feature on our Mobile App and Net Banking that allows customers to send money abroad 24 x 7 at locked in exchange rates for a wide range of purposes, including those that require supporting documents.
Some of the important launches in FY 23 include:
• Feeless Transfers Abroad: We introduced a differentiated proposition of zero fee transfers (i.e. Zero Processing Charges as well as Zero Correspondent/ foreign Bank Charges) on overseas payments to any country.
• SWIFT GPI: We added the capability to track the payments till last mile for customers sending money abroad from India.
• PPI for Foreign Nationals: We were the first bank to make available digital payments through UPI to foreign nationals visiting India. Capability was showcased in the G20 Summit in Bangalore and in partner foreign currency outlets subsequently.
Retail Brokerage
The bank has launched a 3in1 account with the value proposition of a trading account linked to a savings bank account and a demat account. A seamless experience to operate all three accounts with a unique feature of instant hold and release functionality that enables holding funds in a bank account and making investments in listed securities on the stock exchange. In addition, an eATM facility allows you to receive early credit to sell shares in a bank account on the same day, which helps customers earn interest on funds received on the sell of securities.
The Bank continues to expand its capital market offering for its customers with the Application Supported by Blocked Amount (ASBA) facility and 3in1 account. This allows customers to apply for IPOs digitally via net banking, mobile applications, as well as through ASBA designated branches. The features of this offering include the simplification of the application process and assistance during the users online journeys. The customer can also be prepared to sell these securities later on the stock exchange through a 3in1 account with IDFC FIRST Bank.
NRI banking
The Banks NRI business grew significantly during the year as the Bank added a dedicated NRI Relationship Management team to cater to the specialized needs of NRI clients. NRIs have reposed faith in the Bank, evidenced from a significant growth in both balances and addition of new customers. The Bank also offered NRI customers an opportunity to hedge their Foreign Currency deposits in INR, with enhanced yields. The Bank started offering NRI Portfolio Investment Scheme accounts that enabled NRI investors to invest in listed companies in India through stock exchanges. As an industry first, the account can be opened digitally through net banking or mobile application, in a few simple steps, along with instant issuance of the Portfolio Investment Scheme permission letter.
SME & Business Banking
The Banks Business Banking vertical supports Micro, Small and Medium Enterprises (MSMEs) by meeting their working capital requirements through a diverse range of offerings for both funded and non-funded lending within a very strong competitive policy framework.
The Bank developed capabilities for the Relationship Manager to onboard customers digitally in a hassle-free manner. The journey has first-in-segment tools that create best-in- class customer onboarding experience. In line banks focus on digital-first, we facilitate online pull of GST-data, instant bank statement analysis with e-sign, e-stamp for digital documentation. There is continuous focus on enhancing RM skills by way of specialised training as well as support them with strong analytics-led inputs for better penetration of working capital products in existing bank customers.
The Banks continued focus on being a one stop shop for its diversified set of Current Account customers has led to designing specialized products to meet the specific needs of dynamic businesses.
The Bank has launched segmented current account products:
• FIRST Booster : Bank has launched a horizontal product cutting across segments, named as ‘FIRST Booster. using state of the art banking and digital services that provide special attention to enhancing Customer Experience.
• LMS: Bank has launched new product for disbursement of allocated budgets for various govt dept. named ‘Liquidity Management system.
Bank has launched segmented current account for Agri traders.
Apart from the traditional banking services, the Bank also focuses on going one-step ahead by offering numerous other features such as POS, instant QR and wide range of UPI Solutions.
The Bank has also launched Beyond Banking services, which help the customers to avail a wide range of services for meeting their day-to-day business requirements. The Bank has collaborated with 100+ partners offering 150+ Beyond Banking offers, in the space of ERP solutions, HRMS payroll, legal, taxation, advisory, school management, society management, Ecom, travel, communication, etc.
Superior Experience of Sole proprietorship account opening using digital technology, assisted journey using ACE App.
The digital platform provides end-to-end support from transaction initiation to regulatory closure with integrated forex rate booking - all on a single platform.
The Banks Business Banking vertical supports Micro, Small and Medium Enterprises (MSMEs) by meeting their working capital requirements through a diverse range of offerings for both funded and non-funded lending. The Bank developed capabilities for the Relationship Manager to onboard customers digitally in a hassle-free manner.
Direct engagement with MSME customer is done on multi touch point model in addition to branch network like Net Banking, Doorstep banking, virtual RM, E-mail, SMS and Whatsapp.
The Bank has also been taking various initiatives to better equip its employees for providing superior customer service and build deeper relationships. The Bank has enabled tally plugin integrated with business account management app to provide connected banking facility to track payments and receivables at one place.
The Kisan credit card continues to offer a secured working capital facility for customers/ farmers involved in agricultural activities based on credit assessments related to cropping pattern, credit bureau and reference checks as well as legal and technical valuation of the security.
Savings & Corporate Salary business
Savings Book grew at 35% in FY 23. Online journey for Savings Account customers got revamped. The Bank built a strong platform with a vision to provide a seamless, secure, convenient onboarding experience for the customers. The Corporate Salary book witnessed a 47% growth in FY23. We continue to make strong advances in salary accounts with a YOY growth of 64% in new acquisitions. This was possible due to the improved penetration levels in Category A corporate, hitting an all-time high activation rate of 60% in Mar23. Product penetration across liability, asset and investment products too witnessed a strong 122% growth in the FY23. Bank offers best in class DIY onboarding journeys and product features. This year, the Bank introduced a customised offering for the Armed Forces with the launch of Agniveer salary account and signed MoU with Defence establishments for the same. During the year, the bank also received authorization from multiple Government companies such as Government of Gujarat, Mohali Municipal Corporation, Tamil Nadu Cements, Delhi Tourism & Transportation Development corporation to name a few for handling Salary accounts for its employees.
Government Banking
The Government Banking business in the current year has built a robust business model by creating partnerships with Central & State Governments apart from Public Sector Undertakings and multiple government entities by offering new banking solutions, backed by technological capabilities and agile services.
Proactive participation in the e-Governance initiatives of the government through customised solutions to meet their requirements and ease of transacting for the citizens has been the divisions focus area. The Bank provides multiple product suites to government clients including Account Management Services, Corporate Salary Solutions, Transaction Banking, e-Auction and other digital solutions, benefiting the citizens.
The Business works in tandem with the branch banking teams to fulfil the banking needs at all levels viz. Central, State, Districts, Blocks, Panchayats and Villages on the PFMS platform. This synergy has resulted in the Bank being empanelled by various state governments / Municipalities for providing banking services.
The Government Banking team has also developed and created a digital architecture to support the Agency business once the Accreditation is awarded from the designated authority. In FY23, the Bank has achieved one of the key criteria of 3 consecutive years of profitability which will help the Bank to grow the government banking business from FY24 onwards in a sustainable way.
Startup Banking
Bank is pleased to present IDFC FIRST Banks Startup Banking program - FIRST WINGS, which has been specifically designed to cater to the unique needs of startups. Bank understands the challenges and opportunities faced by startups and is committed to building a strong presence in the startup ecosystem.
Bank has showcased its commitment to support Indias startup story by creating FIRST WINGS, a dedicated banking service for startups that offers curated financial solutions through their ‘Early and ‘Growth stages. The offerings include a Zero Balance Startup Current Account and FIRST Booster Current Account with unique features like zero balance requirement, unlimited IMPS/NEFT/RTGS transactions, free doorstep banking and much more. The offerings also include uniquely designed Working Capital solutions for Pre-Profit startups, Secured Business Credit Card with step-up credit, a tailored Founder Success Program called "Leap To Unicorn" and 100+ ‘Beyond Banking offers from our partners.
As part of our efforts to support the startup ecosystem, Bank has also launched an initiative called ‘Leap to Unicorn in collaboration with Network18 and Money Control. Leap To Unicorn provides a digital platform for startups and ecosystem players to connect and explore synergies. This initiative provides Indias most promising startups with a 15-day boot camp conducted by startup ecosystem experts, an opportunity to pitch to Indias marquee investors, and media coverage to share their ideas with the world. This special ‘Founder Success Program plays a crucial role in engaging, grooming, and connecting with startups, thus contributing to their success story. This program offers knowledge series, masterclasses, and networking sessions that help startups grow and succeed at every step of the way. Bank has also partnered with leading investors, ecosystem players, campus partners and various state startup cells through Leap To Unicorn initiative.
Bank is committed to being more than just Banking partners to startups; the aim is to be their Business partner, supporting them in their journey to success.
RETAIL, RURAL & MSME ASSETS
Within the retail, rural and MSME asset segment, Home Loan business witnessed robust growth in the last financial year in spite of challenging macro environment. The growth in business has been driven by customer segment focused distribution model, segment specific product programs and policies, increased focus on primary market through partnerships with builders, and digital process driven customer journeys with best in class turn-around time.
The Bank continued to build the wheels business in a safe and secure manner with tightened credit controls. The Bank witnessed a steady recovery in the vehicle financing segment in terms of disbursals. In Commercial Vehicle loan segment, bank is focusing on retail customer segment particularly small commercial vehicles and pre-owned commercial vehicles. 65% of the lending in this segment is to the customers in the priority sector. The Bank has developed the capabilities to become leading financier for electric two wheelers in India. The bank stayed invested in enhancing customer and partner experience through seamless and automated processes.
The bank has built an excellent business banking propositions where we provide working capital solutions to small entrepreneurs at a security of property. The bank additionally offers tailor made unsecured business loan solutions for MSMEs. The bank has developed strong systems and technologies to grow this business strongly going forward. The retail SME team took proactive steps in spreading the awareness of the revised MSME guidelines in terms of registration on UDYAM portal and placing an UDYAM certificate on record with the lender.
Rural Banking - Combining High Touch with High Tech
The Rural Banking unit of IDFC FIRST Bank has stayed the course of positively impacting lives and livelihoods across the length and breadth of our country. The unit was established with a commitment to providing quick and accessible credit to the underserved and unserved segments, thereby partnering in the growth of local communities and small entrepreneurs.
In the Financial Year 2022-23, the unit lived up to its promise of ensuring that all banking services across assets, liabilities and payments are provided to Rural India. With a geographical presence spanning across 319 branches across 13 states, the Rural Branch served as a one-stop-shop for all the Banking needs for our rural customers. The product suite expanded to include group loans, micro loans, housing loans, dealership products, agri loans, personal and business banking offerings, and credit cards & gold loans.
Apart from expanding the product offerings, this year also saw the unit doubling down on its efforts to educate customers and employees about the benefits of Digital and Online Banking. Customers were made aware of the benefits of formalizing Savings in Banks, on time repayment of loans to maintain a healthy bureau score, and the advantages of using Mobile and Internet Banking services.
The units strength has always remained a strong connect with local communities. By being all-weather partners to rural segments, immense trust and goodwill has been built across the customer base. The unit conducts quarterly community outreach activities to educate and support local catchments. Periodic activities such Safe Banking for Senior Citizens, Financial Literacy for school children, Digital Banking awareness for women, and Preventive Eye Camps in collaboration with local hospitals ensured that our commitment to the local communities remain steadfast.
The units flagship CSR activity - Shwetdhara - has now expanded across the states of Madhya Pradesh, Karnataka, and Rajasthan. Shwetdhara is a women-led community program which focuses on the income generation of small and marginal farmers through cattle breed improvement by enabling market-led solutions and behavioral change in cattle management practices involving intensive training) .
On the employee side, the unit continued investing in capability building of its staff. A bespoke training program was conceptualized with Institute of Rural Management, Anand (IRMA) for high performing middle managers. Several in house training programs were run to improve the presentation and communication skills and instil confidence in rural employees to take on larger responsibilities within the Bank.
The unit is deeply rooted in giving back to the community & partnering in diverse and inclusive growth story of our country. While growth in business numbers with a pristine portfolio quality is the first order consequence, its even more heartening to observe second and third order consequences such as (A) local non-English speaking entrepreneurs being given wings, (B) rural women developing confidence to challenge age-old social barriers, (C) families breaking out of inter-generational poverty traps, and (D) access to credit and banking being democratized and made bias free. Were proud of seeing the transformational impact being created by this unit. With increase in reach and scale, this impact will increase across orders of magnitude in the years to come.
WHOLESALE BANKING
During FY22-23, your Bank continued its focus on the long term strategy for Wholesale Banking. The team succeeded in maintaining an excellent portfolio-level performance, despite the macro environment challenge of rising interest rates due to the RBI increasing the benchmark REPO rates cumulatively by 2.5% during FY23.
The Bank further transitioned its exposure from the legacy business of infrastructure project lending and from large-ticket lending to a more diversified and mid-sized lending. It enabled the bank to maintain excellent asset quality and successfully resolved certain stressed loans with recoveries from them during the year.
The Bank continued its effort in providing a full-service suite of Corporate Banking to its clients, including Large Corporates, Emerging Large Corporates, NBFCs and Financial Institutions. The Bank now offers all products encompassing Lending & Liability Accounts, Trade Financing, Financial Markets, Cash Management, Payments handling and Debt Syndication. Focussed technological developments to improve the customer experience is a target across all the above products.
Corporate Coverage
The Banks Corporate Coverage Group further improved its performance in getting higher number of new to bank clients from operating mid-sized corporates. This is leading to granular assets from the corporate sector and is substantially reducing portfolio credit risk on the Banks balance sheet as compared to earlier years long-term and big-ticket infrastructure legacy assets. The bank continued following a very disciplined credit evaluation process which has led us to incremental portfolio with strong asset quality. The bank maintained its record of having near-zero stress on the entire new-to-bank corporate portfolio built over the past three years.
During the year under review, the Bank grew the corporate sector balances by 9% from Rs. 23,964 crore as on 31st March 2022 to Rs. 26,149 crore as on 31st March 2023. This growth was the outcome of last few years continued effort focused on granularizing the portfolio and working on new to bank clients in the sector. At the same time, continued with the strategy the Bank has reduced its legacy infrastructure financing portfolio by 32%, from Rs. 6,891 crore as on 31st March 2022 to Rs. 4,664 crore as on 31st March 2023. The Bank would continue on this strategy going forward as well.
The Banks credit rating threshold for initiating a relationship continues to be in a healthy zone with most of the business being initiated with the high-quality investment grade corporates. Going forward, Bank will continue to focus on growth of corporate book built through more new-to-bank customers and enhancing the limits utilisation by the existing clients.
Financial Institutions Group
The Banks Financial Institutions Group (FIG) addresses the finance and banking needs of Domestic as well as International Financial Institutions.
The FIG team engages with the domestic commercial banks, small finance banks (SFBs), Insurance Companies and Capital Market participants such as Exchanges, Clearing Houses, Mutual Funds, FPIs, AIFs etc. The Bank on-boards large liability-strong Institutions by offering superior transaction banking services through innovative products and assuring client-centricity for product delivery. The Bank has been able to create traction with large Institutions, thereby improving its footprint substantially.
The Banks FIG team is also responsible for relationship management with International Banks, Multilateral Agencies and offshore Financial Institutions. Further, the FIG team actively engages with Institutions like SIDBI, NABARD, NHB and Exim Bank to avail refinance and with overseas branches of domestic banks to avail foreign currency borrowings. Leveraging on its strong relationships with banks, the Bank also acquired Priority Sector Assets to meet its regulatory requirements, through investment in IBPC issued by these banks and purchased priority sector lending certificates (PSLCs) from them.
The Bank continues to strengthen its network of international banks and FIs to deliver efficient Treasury and Trade Finance solutions to the Banks local customers, who have banking requirements offshore. The Bank also offers complete suite of products encompassing Financial Markets, trade finance and financial advisory to the offshore banks and FIs, thereby enabling them to provide seamless India linked service to their clientele. Through strong relationship management and distinctive service, the Bank has built up strong network in prominent India linked trade corridors. As of March 2023, the Bank has been able to develop strong correspondent banking network of over 260 global entities, spread across 56 countries.
In line with your banks vision and ethos of using technology to achieve the status of world class bank, the FIG has been using technology to offer cutting edge solutions in some products being offered to the clientele. This has resulted in your bank gaining a sizable market share in certain products. The team shall continue to focus on implementing technological solutions going forward.
Financial Markets Group
The Banks Financial Markets Group consists of Balance Sheet Management (BSMG), Trading desk, Foreign Exchange (Fx) and Fixed Income Sales.
BSMG is responsible for management of funds and liquidity in all currencies and for compliance with various limits as per the Asset Liability Management (‘ALM) Policy, Investment Policy and FX and Derivatives Policy of the Bank. This desk is also responsible for managing the interest rate risk in the banking book.
Trading desk is responsible for dealing and market making in Fixed Income, FX and derivatives products and other Investment products. All transactions are carried out within risk limits of the Bank as per the Investment Policy and FX and Derivatives Policy, with an aim to facilitate customer transactions.
Financial Markets Sales desk is a customer centric desk catering to customer requirements in FX and Derivatives products and providing debt capital markets services, subject to regulatory and internal requirements as per the Investment Policy, FX and Derivatives Policy and Suitability and Appropriateness Policy. There are six dealing centres pan India to facilitate client requirements. The team provides automated pricing channels for dealing along with end to end solutions to handle remittances for both retail and corporate clients. Technology is used as an effective lever by the Sales team, thereby delivering customized solutions to various client segments.
Fixed Income Sales team caters to delivering customized investment solutions in government / corporate bonds to various client segments.
In-house research desk disseminates timely reports on macroeconomic developments and trends in Financial Markets to keep our clients abreast of market developments.
TRANSACTION BANKING
The Banks Transaction Banking solutions are designed keeping in mind 4 key principles viz. a) Right customized Solution, b) Seamless onboarding & migration, c) Convenience of transacting platform and d) Effective customer service on an on-going basis. Keeping these principles at the core we provide solutions which are best-in-class, technology-led and client centric with seamless experience.
The Transaction Banking vertical offers a unique state-of the- art digital platform which offers a unified interface for accessing various products and services across their business usage. The Bank continues to enhance its next-generation corporate banking portal, the Business Experience Platform (BXP), which unifies cash management, trade services, corporate linked finance, and treasury services for a seamless banking experience.
The Transaction Banking team continues to work closely with technology partners, regulators and service providers on various strategic projects & dedicated focus across the customer engagement layers led to ensure that our customers are well equipped to be digital FIRST in all forms of transactions bringing financial benefits & superior client experience.
During the year, the Bank offered various new digital solutions within Cash Management on the payments as well as the collections side. The Banks initiatives have resulted in 95% of clients payments as well as 81% of clients collections volumes being digital. During the year, a focused approach was made to enhance specific segment based channel usage such as Corporate Mobile Banking, Digital CMS on-boarding, API Banking connectivity apart from the existing online platform i.e, BXP, covering Payments, collections, Alerts & balance enquiry, etc.
The Bank had embarked on its Digital Transformation journey in last financial year and have taken giant strides in developing and operationalizing new platforms and channels. The Bank has successfully launched the BXP Mobile app for all wholesale banking clientele directed at 24*7 access of relationship, convenience of authorizing payments on the go and keeping security at the helm of the offering. This has been received very well in the market and in a short space of 6 months of launch, there have been 2000+ downloads by corporate users and related transactional value processed through the mobile app. Also with a view to aid in digital change management and reduce friction, the Bank also rolled out an Industry FIRST- Digital Onboarding platform for all Cash Management products.
Under the assisted mode of launch, the platform has resulted in reduced physical interaction due to automated journeys (70% reduction in TAT) and increasing transparency during the process. The positive impact has also been corroborated by the Bank being awarded as the Best Financial Institution in Digital Innovation by Bharat Fintech Summit 2023.In addition, Bank also won two prestigious awards by AAA Asset team: 1) Best Payment & Collection Solution for Arohan Financial Services and 2) Best E-Solutions Partner amongst all Domestic Bank in India. The Bank has been actively collaborating with key partners by offering unique propositions around Digital Escrows and Corporate Expense management solutions. The Bank continues to explore synergies in this domain.
Further, with use of technology, new product developments/ innovation during the year along with usage of Robotic Process Automation (RPA), various solutions of Payments, Collections and Liquidity were developed in line with client requirements. Few such new solutions introduced during the year are Connected Banking, Chatbot based Autopay, Virtual Account plus (Payment on behalf of solution), chatbot based servicing, real time API notification for Cash & Cheque to update instant pick-up status, introducing new APIs services related to Account services and many more.
During the year, specific emphasis was made around system stability and multiple technology led initiative were undertaken such as system performance regression testing, scheduled downtime to perform system and regulatory changes, enabling data server to archive the data for better system performance, etc.
The Bank has also embarked a new journey in Cash Management space where the team is in the process of revamping the existing CMS system with completely new microservices architecture based platform and in addition creating a unified common experience layer for customers along with analytics as well as eco-system related journeys. The building blocks include various initiatives which will enable better system performance, enhance customer experiences and have industry FIRST innovations.
In the Trade Finance & Remittances space, Bank consistently focused on the digital agenda for Trade flows, providing smooth and faster turnaround time for clients for transaction processing. A next-generation portal technology integrating Trade Finance Solutions, Remittances, FX Solutions and Regulatory Submissions (IEDPMS) enables clients to transact from anywhere in a few clicks. With its comprehensive and unique solutions, Bank has converted substantial percentage of Trade Finance & Remittance transaction flow to Digital mode.
During the year, the Bank has implemented e-stamping mechanism in partnership with SWIFT India and Stock Holding to facilitate clients to procure electronic stamping instead of paper-based stamping. Bank also implemented paperless credit appraisal document process for supply chain finance solution to enable faster credit sanction to customers. In addition, Bank upgraded Trade Finance systems to timely comply with key market developments like LEI Implementation and SWIFT Inward MX format message consumption for cross border transactions. During this year, the Bank is also appointed as a board member of Indian Banks Blockchain Infrastructure Corporation Private Limited (IBBIC). This entity is developing a Trade Finance system using the latest blockchain technology.
In addition, the team has embarked a new journey on revamping the supply chain financing system which will enable customers for seamless onboarding, financing & tracking under defined credit programmes.
OPERATIONS
The Banks retail banking operations team has played a crucial role in successfully executing business priorities and digitization processes across various retail, rural and MSME financing assets, as well as retail liabilities. To enhance efficiency and turnaround time, the Bank has implemented paperless processes through nodal hubs, which have also contributed significantly to advancing the Banks environmental, social, and governance (ESG) agenda. Guided by the Banks vision to be a world-class bank powered by technology, we continuously strive for improved customer delivery through better and faster processes.
In addition, the Banks Wholesale Banking Operations provide exceptional transaction delivery and focused customer advisory and services. They cater to cash management, treasury, trade finance, lending, and structured finance needs of corporates, financial institutions, and government entities. Furthermore, the Wholesale Banking Operations handle essential enterprise functions like Clearing and Cash, supporting all customer segments and E-toll operations. The team takes pride in its strong, knowledgeable, and professional members who ensure best-in-class delivery support and assurance for customers. Throughout the year, Wholesale Banking Operations have implemented various transformative changes, including several industry-first or industry-leading initiatives. These changes have positively impacted customer experience, improved operational controls, and ensured regulatory compliance. Key initiatives include upgrading the core build of the treasury systems, collaborating with Wholesale Business to create corporate banking workflow-systems, piloting and going live with Central Bank Digital Currency (CBDC) for wholesale bond trading (the first bank in the country to do so), implementing cutting-edge AI/ML technology solutions in e-toll operations (where the Bank is the largest player in the country) for faster dispute resolutions, and enhancing sanctions screening for streamlined processing of cross-border transactions. Other notable achievements include implementing SWIFT GPI for end-to-end tracking of cross-border funds flows, e-BG issuance, reconciliations of MI on the ONDC platform, and introducing a corporate chatbot with six new service features for customers.
Against the backdrop of an fast-changing world, the Bank is proactively undertaking various initiatives across its product portfolio to ensure that its processes and systems remain one step ahead. The emphasis on technology and channels has enabled the Bank to deliver high levels of service in a cost- effective manner and on a large scale.
TECHNOLOGY
The bank continues to invest and build on its technology platforms to create differentiated end to end digital products and services to address the needs of our next generation customer expectations. The bank is focused on creating customer experiences that enable a range of services across retail & corporate banking, lending, cards, payments and remittance services across customer acquisition, transaction management and servicing while maintaining customer privacy with high degree of security. The bank is also working towards developing innovative and disruptive solutions to simplify customer experience, deliver market leading products with high degree of digital engagement and adoption.
RISK
The Bank promotes a strong risk culture throughout the organization. A strong risk culture is designed to help reinforce the Banks resilience by encouraging a holistic approach to management of risk and return, and an effective management of risk, capital and reputational profile.
Consequent to the merger of erstwhile IDFC Bank Limited and erstwhile Capital First Limited effective December 2018, Bank has re-aligned its key policies and Risk Framework forming an overall Risk framework of the merged entity. The Bank operates within an effective risk management framework to actively manage all the material risks faced, in a manner consistent with the Banks risk appetite, making the Bank resilient to shocks in a rapidly changing environment. The Bank aims to establish itself as one of the key leaders in the management of risks and strive to reach the efficient frontier of risk and return for the Bank and its shareholders, consistent with its risk appetite. The Board has ultimate responsibility for the Banks risk management framework. It is responsible for approving the Banks risk appetite, risk tolerance and related strategies and policies.
The Bank has a robust risk governance framework. The Board is principally responsible for approving the Banks risk appetite, risk tolerance and related strategies and policies. To ensure that the Bank has a sound system of risk management and internal controls in place, the Board has established Risk Management Committee of the Board (RMC). The RMC assists the Board in relation to the oversight and review of the Banks risk management principles and policies, strategies, risk appetite, processes and controls.
Risk Management Committee assures independence of Risk Management to the Board and constructively challenges the managements proposals and decisions on all aspects of risk management arising from the Banks activities. Risk Management Committee also ensures comprehensive periodical risk reporting for all segments of risk including credit risk, market risk, liquidity risk, operational risk, reputational risk, fraud risk etc. Risk Management committee also oversee stress testing framework to measure the plausible impact of unusual market conditions on Banks financials and plan for contingencies.
Credit Risk
Banks credit risk is controlled and governed by the Board approved Credit Risk Management Policy and the Credit Policy. The Credit Risk group has been established to independently evaluate all proposals to estimate the various risks as well as their mitigation.
The Bank has rigorously adhered to the RBI mandated prudential norms on provisioning including on the basis of evaluation of impact arising out of the fallout of COVID 19 on the underlying portfolio, which is aimed at creating and protecting shareholder value. During the year, our Bank continued to proactively work on the resolution of the stressed asset portfolio and has further reduced the position. Bank has also de-risked the portfolio by diversifying the credit portfolio across non-infrastructure sectors and focused on increasing shorter-tenure and granular exposures. With these measures, we have sought to reduce the concentration risk in the portfolio.
The Banks trading positions in debt, foreign exchange, derivatives, and equity are subject to Market Risk. Market Risk Group is responsible for identifying, measuring and monitoring such risks. Our Bank has put in robust policy frameworks such as Market Risk Policy, Funds and Investment Policy, Forex and Derivatives Policy to ensure positions, which are subject to market risk are maintained within the approved risk appetite of the Bank. Several models and tools such as MTM, PV01, VaR, Stress testing, Capital Charge assessment and extensive limit management framework etc., are used to measure and continuously monitor such risks. The tools, models and underlying risk factors are reviewed periodically to enhance their effectiveness. The group also supports the Asset-Liability Management (ALM) function. The purpose of the Asset Liability Management Committee (ALCO) is to act as a decision-making unit responsible for integrated balance sheet risk-management from risk-return perspective including strategic management of interest rate and liquidity risks. ALM function also supports measurement and monitoring of Liquidity Gaps, resilience to liquidity stress using tools like LCR and Interest Rate Risk in Banking Book by assessing impact on NII and Market Value of Equity due to changes in underlying interest rates.
Operational Risk
Deregulation and globalisation of financial services, together with growing sophistication of financial technology and increasing complexity and volume of financial transactions, are making the risk profiles of Banks more complex. A growing number of operational losses and risk events, recent regulations, industry trends and new types of threats and exposures have highlighted the importance of Operational Risk management. Operational Risk touches every part of the organisation from products, people, processes and technology and hence it is important to identify and manage proactively. The Bank has put in place Board approved governance and organisational structure to manage Operational Risks. A committee comprising senior management personnel namely ‘Operational Risk and InfoSec Risk Management Committee is responsible for overseeing implementation of Board approved Operational Risk Management policy and framework. Operational Risk Management Department engages with the First Line of Defence (Business and Operating Units) on a continuous basis to identify and mitigate operational risks to minimise the Risk and its impact.
Information Technology and Information Security RiskBanks expansion strategy has been progressively more and more digital. Given this, cyber/Information Security risk is identified as a material risk for the Bank. The Information Security Group (ISG) as a governing team works with IT team and are jointly responsible for Cyber/Information Security and works continually towards adoption of newer and better security practices. Bank operates under the Information Security Management System framework (ISMS), which is aligned to ISO 27001 and RBI Cyber Security Framework and other guidances issued from time to time. The Bank is an ISO 27001: 2013 and PCI DSS certified organisation. Bank follows systematic approach through people, process and technological security controls to prevent, detect, respond and recover from cyber-attacks and manage sensitive company information so that it remains secure by design and practice.
Bank is working closely with the Regulators to ensure that high level of compliance is maintained across various advisories received. Bank is also working on an augmentation plan in maturing its security posture with renewed focus on risk based remediations towards improved Secured Digital Bank as a continuous endeavour.
Information / Cyber Security Framework
IDFC FIRST Bank, since its inception, has put in place a robust Information/ Cyber Security Framework. Our Bank, being a green field setup, has Information Security woven into our banking platform and seamlessly merges both culturally and technologically. A dedicated team of security professionals are part of the Information Security Group (‘ISG) who govern the Information Security practices in the Bank. Our Bank has put in place state of the art security technologies including several industry ‘firsts technology solutions and adopted ‘defense in depth approach & industry best practices as part of our security framework and architecture.
Last year, the Bank worked closely with the Regulator to work towards an augmentation plan to improve its cyber security maturity.
This year, while continuing on its journey to mature its posture, Banks focus will continue to be on consolidation and improving its deployment posture of the technologies invested in the previous years. In addition, Bank has initiated some additional initiatives including:
• Accelerating its risk-based remediation program
• Improving its threat detection and response capabilities
• Enhancing its cloud security program
• Deploying zero trust model
• Data discovery and life cycle management
The Bank continued to maintain and upkeep its compliance posture to standards such as ISO 27001 ISMS (Information Security Management System), PCI DSS and regulatory requirements. Given the changing threat landscape, the attempt is to progressively move towards maturity of proactive and adaptive platforms for automated detection, response and recovery.
Capital Adequacy
The Bank manages its capital position to maintain strong capital position well in excess of regulatory and Board approved minimum capital adequacy at all times. The strong Tier-I capital position of the Bank is a source of competitive advantage and provides assurance to regulators, credit-rating agencies, depositors and shareholders. In accordance with the RBI guidelines on Basel III, the Bank adopts the standardised approach for credit risk, basic indicator approach for operational risk and standardised duration approach for market risk.
Capital management practices are designed to maintain a risk- reward balance, while ensuring that businesses are adequately capitalised to absorb the impact of stress events including pandemic risks. The Internal Capital Adequacy Assessment Process (ICAAP) forms an integral part of the Supervisory Review Process (SRP) under Pillar 2 of the Basel III Framework. SRP under the Basel III Framework (Pillar 2) envisages the establishment of appropriate risk and capital management processes in banks and their review by the supervisory authority. ICAAP is a structured approach to assess the risk profile of the Bank and determine the level of capital commensurate with the scale and complexity of operations. As part of the Basel III implementation, Bank has developed a comprehensive ICAAP policy and document, in line with regulations prescribed by the RBI.
The document aims to assess the risk profile of the Bank and whether the capital maintained is commensurate with the scale and complexity of operations. The document also contains projections of financials for the Bank, and its capital adequacy projections for next three years under normal and stress conditions. It also contains relevant details of plans and strategies for meeting capital requirements. Stress testing forms an essential part of ICAAP. It requires the Bank to undertake rigorous, forward-looking assessment of risks by identifying severe events or changes in market conditions which could adversely impact the Bank.
The ICAAP ensures that stress-testing reports provide senior management with a thorough understanding of the material risks to which the Bank is exposed. Stress-testing complements other approaches in the assessment of risk. It is the primary indicator of the Banks ability to withstand tail events and maintain sufficient levels of capital. It is used to evaluate the financial position of the Bank under various plausible scenarios (base, medium and severe) to assist in decision-making. It also assists the Bank in improving its risk monitoring processes
Environment and Social Policy (E&S) and Appraisal Process
The Bank has a comprehensive environment and social policy and a robust environment and social risk management framework for its lending businesses. The Environmental Risk Group (ERG) of IDFC FIRST Bank works proactively with clients/ internal teams to identify, mitigate and manage E&S risks associated with projects/ transactions. The Bank obtains environment-related regulatory compliance information so as to ensure that the projects/ transactions it finances are in compliance with the applicable national environmental legislations.
IDFC FIRST Bank has developed and adopted an exclusion list comprising sectors in which it will not engage in any financing activity. The Bank continues to hold the distinction of being Indias first financial institution to sign up for the Equator Principles (EP) - a credit risk management framework for determining, assessing and managing environmental and social risk in Project Finance transactions.
For the purpose of financing activities, IDFC FIRST Bank has also identified sensitive sectors which have potentially high impact on the environment and communities, and where the Bank may have to deal with critical E&S issue.
INTERNAL CONTROLS
The Bank has an independent Internal Audit Function, headed by the Chief Internal Auditor. The Internal Audit Function of the Bank constitutes the third line of defence of the Bank and adopts a risk-based approach to provide independent, objective assurance on the effectiveness of internal controls, risk management practices, information security systems, compliance with regulatory requirements and corporate governance to the Board, Management and other stakeholders. The Internal Audit Department is appropriately staffed with qualified and competent personnel and is provided with full budgetary support to perform their duties as outlined in the Internal Audit Charter which is approved by the Board of Directors. The internal Audit Function adopts appropriate international and local audit standards and is also subjected to periodic independent external reviews.
Internal Audit reports all significant observations and their follow-up actions to the Audit Committee of the Board. Further, the Audit Committee reviews adequacy and effectiveness of the Banks internal control environment and also monitors the implementation of audit recommendations. The Audit Committee reviews and evaluates the functioning of the Banks Internal Audit Department through independent meetings, reviews and formal annual evaluations.
HUMAN RESOURCES
People are our most valuable asset and central to the Banks growth. Our people are resilient and ambitious contributing to the vision of the Bank.
The year under review saw HR placing significant focus on partnering with business to achieve the Organisation Goals and building alignment to changes in target operating models, ways of working and the culture of the bank. We have also built capabilities to attract and hire for edge and niche skills, particularly in Technology, Data and Analytics, Digital Platforms, Digital Marketing i.e., the new age functions. The Bank has become very resilient and is able to manage change more easily. The bank has done very well in retaining its top talent.
There have been many tools and initiatives that were introduced to improve employee experience to customer grade level. Digital Hiring/Candidate journeys, seamless Onboarding, transparent and fair Performance Management, competitive rewards, world class Learning platforms, Employee Wellness covering mental, physical and financial aspects, Recognition schemes to motivate &award employees are some of the key initiatives. The employee experience platform, iConnect, has made work much easier for employees thereby enhancing productivity. Another aspect of employee experience is ensuring a safe working environment. This has been ensured by quick resolutions to employee queries and grievances. The bank has scored 4.1 on Glassdoor which is among the highest in its category.
The Banks strong focus on capacity building and learning is evidenced by the sharp increase in learning hours from 19 hours per employee last year to 52 hours this year. There was particular emphasis on leadership training this year while ensuring robust delivery of technical knowledge and skills, with a completion rate of 99% for mandatory learning.
Training programs were curated to individual needs in partnership with businesses and functions. The Bank also invested in developing leadership skills to create leaders for tomorrow. Digital Learning platforms like Plural sight, Immersive Labs and CUBE complemented our various virtual & classroom trainings in our journey to make learning the USP of the Bank.
During FY23, the attrition of the Bank at account opening and junior role was 39%, middle management level was at 18% and senior management was 10%. These attrition levels are lower than reported for similar players in the market. The Bank is perceived in the market as an institution with high levels of corporate governance, geared with cutting edge technology, future-ready franchise with robust business model which offer attractive growth opportunities in the marketplace. Hence, the attrition levels for the Bank were relatively lower as compared to the attrition levels reported in the press for this sector. Although the overall economic growth has also been quite strong to induce lateral movement, the Bank has been able to contain the attrition levels effectively and attract talented individuals, especially in the middle and senior management level during FY23.
Strong employee commitment is the foundation of enhanced customer experience. The Bank rolled out a range of initiatives aimed at creating an environment that would help employees stay committed and succeed. These included virtual wellness sessions, rewards and recognition programs, sports tournaments and a transparent performance management system. The Bank also has a dedicated team to address employee queries. To encourage physical, mental and financial well-being, the Bank launched the wellness microsite Tan Mann Dhan.
When the COVID-19 struck, the Bank announced certain schemes for the well-being and interest of the employees. The Bank lost 24 employees during this phase as they fought hard but succumbed to death. The Bank made certain promises to the families of these employees for education assistance / scholarship to their children till the time of their graduation and many other related benefits. The Bank continues to honour such promises through the year.
Employee communication has been robust ensuring that employees are fully aware of what is going on in the bank, and what their responsibilities are. There are communications from MD, CHRO and other leaders at regular frequency to align and engage employees and build the right culture. Technology and data science capabilities play a pivotal role in the overall strategy and business approach for the Bank. In order to enable informed decision making and predictive modelling of human resource data, data-rich dashboards were made sharper and used for enhancing the Banks ability to track employee effectiveness and productivity.
ESG
IDFC FIRST Bank has taken an integrated approach to embed Environmental, Social and Governance (ESG) considerations into its business, employees, and customer operations. The ESG team at IDFC FIRST Bank is constantly brainstorming on how to create sustainable business value for customers, communities and all stakeholders. The Bank is closely monitoring global developments in climate-related financial risks, especially physical risks which can translate into credit risk on the banks lending portfolio. Based on emerging regulatory and global trends, the Bank has focused its attention on ESG right from the management and board levels. IDFC FIRST Bank is an official participant of the United Nations Global Compact (UNGC), one of the few official supporters of Task Force on Climate-Related Financial Disclosures (TCFD) in the Indian Banking sector, and one of the first financial institutions in India to be signatory to the Equator Principles.
IDFC FIRST Bank has internally formulated 7+ ESG-related policies and achieved significant milestones in its ESG initiatives since the past one year. On the environmental front, the Bank has received IGBC & LEED Gold certification for multiple large offices with its headquarters being fully powered by green energy. The Bank financed over 1.1 lakh EV two wheelers in FY 23 and processed over 8.6 tonnes of e-waste in an environmentally friendly manner. As part of its customer awareness programme to promote energy-efficient products that can potentially minimise carbon emissions, the Bank financed over 96,000 inverter air conditioners in FY23.
On the social front, IDFC FIRST Bank has a strong focus on CSR activities with voluntary spends of over Rs. 51.68 Cr over the last 3 years. The Bank lent Rs. 9,818 Cr loans to MSMEs (PSL) during FY23. In the Bank, 6,656 on roll and off-roll employees volunteered over 8,495 hours in various programmes in FY23 for social good. The employees also spent 1,748,333 learning hours in FY23 approximating 49.45 hours per employee. On governance, the Bank provides fully digitized customer journeys for multiple products to save paper and 25 unique customer-friendly and fee-free services on savings account. IDFC FIRST Bank is certified with ISO 27001 (Information Security Management System) to mitigate risks related to data security.
Looking ahead, IDFC FIRST Bank is transforming its ESG challenges into opportunities by bringing in new initiatives such as automation of ESG data collection using SaaS model; setting targets on climate action and Net Zero post assessment of GHG baselines and carbon roadmap; identifying possible responsible lending opportunities; proactively assessing climate risks at a Bank level through TCFD assessment and scenario analysis; and adhering to guidelines from RBI on green deposits, to name a few.
Detailed information on ESG initiatives is covered in the Integrated Reporting section. Quantitative sustainability disclosures can be accessed in the Business Responsibility and Sustainability Report (BRSR).
OPPORTUNITIES & OUTLOOK
FY23 has been a year of recovery for the Indian economy following the impact of COVID-19 in FY21 and FY22. The growth recovery in India has remained strong, with GDP growth surpassing that of other large economies. The services sector has led the recovery as consumption patterns normalize. However, the global macro-economic scenario has experienced some turmoil, particularly due to the tightening of global monetary policy in response to inflation pressures. Many large economies, including the USA, have raised policy rates, and the US Fed has hiked rates by 475 basis points since 2022, initiating quantitative tightening. This tightening has also affected the domestic market, with the Reserve Bank of India (RBI) raising the repo rate by a cumulative 250 basis points in FY23. Nonetheless, the recent pause in rate hikes by the RBI, coupled with improved CPI inflation in the second half of FY23, indicates a stable growth environment going forward.
Despite the repo rate hike, credit growth in the banking system has remained strong. Deposit growth for the year was around 9.6%, compared to 8.9% in FY22, and there has been increased competition to mobilize deposits, particularly CASA deposits. IDFC FIRST Bank has laid the groundwork for steady deposit growth through its customer banking app, digital journeys, efficient customer service and processes, and customer-friendly products like "zero-fee" banking for savings account customers. With a growing branch presence and strong brand recall, the Bank is confident in its continued growth journey to mobilize deposits.
In comparison to deposit growth, credit growth in the banking system was higher at 15.0% in FY23, compared to 8.6% in FY22. This growth also factors in the lower outstanding credit base in FY22, which was impacted by two waves of COVID-19. Personal credit, including housing loans, credit cards, auto loans, consumer durable loans, and education loans, grew by around 20% in FY23, compared to 12.5% in FY22. This credit growth has been supported by digital innovations, credit guardrails, regulations, policies, and the maturity of credit bureaus. The adoption of new payment ecosystems across the country has gradually brought a large portion of the unserved population under the credit umbrella. In FY23, the number of outstanding credit cards increased by 16%, UPI QR codes increased by 48%, credit transfers through UPI went up by 46%, and payments through credit cards increased by 28%. The RBI has launched various initiatives, such as the Central Bank Digital Currency (CBDC) and UPI payment for foreign nationals, to further boost growth in the credit and payment ecosystem.
Over the past four years, IDFC FIRST Bank has invested in creating capabilities to address the growth potential in the Indian economy. The Bank has introduced several new products, including prime housing loans, credit cards, auto loans, education loans, and gold loans, while also expanding its existing product offerings. With a diverse range of products catering to both traditional banking credit and the underserved market, as well as leveraging digital innovation and cutting- edge analytics, the Bank is well-positioned for growth. The Bank has actively participated in new banking initiatives driven by digital innovations like account aggregators, ONDC, and OCEN, which will further increase the demand for small and micro credit. With a comprehensive suite of products for SMEs, including secured long-term funding, working capital loans, micro-lending products, current accounts, overdraft facilities, transaction banking, forex services, BG, and LCs, the Bank is poised to capitalize on this opportunity. Furthermore, the Banks decade-long experience in MSME lending, across multiple economic cycles, adds to its advantage. The Bank is gradually scaling up its Start-up Banking program to support aspiring entrepreneurs with their banking needs.
IDFC FIRST Bank has been chosen by the RBI to participate in the pilot project of CBDC and UPI for foreign nationals, positioning it as a key player in the payment ecosystem. The Bank has already achieved a leadership position in the FASTag market within a few years of its launch, offering a 3-in- 1 proposition for toll payment, parking fee payment, and refuelling at select fuel stations. The rapid development of road infrastructure programs by the government of India, coupled with the growth of the auto segment, presents significant opportunities for the Bank in this business.
With strong capital adequacy, governance standards, and a diverse range of products in loans, deposits, branch banking, payment products, and other services supported by cutting- edge technology, analytics, and digital innovations, the Bank is well-equipped for future growth. Stable asset quality and improved profitability, driven by effective leadership and an energetic team, provide a steady growth path for the Bank.
CAUTIONARY STATEMENT
"Statements made in this Management Discussion and Analysis Report may contain certain forward-looking statements based on various assumptions on the Banks present and future business strategies and the environment in which it operates. Actual results may differ substantially or materially from those expressed or implied due to risk and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India and abroad, volatility in interest rates and in the securities market new regulations and Government policies that may impact the Banks businesses as well as the ability to implement its strategies. The information contained herein is as of the date referenced and the Bank does not undertake any obligation to update these statements. The Bank has obtained all market data and other information from sources believed to be reliable or its internal estimates, although its accuracy or completeness cannot be guaranteed"
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ATTENTION INVESTORS
- Prevent Unauthorized Transactions in your demat / trading account Update your Mobile Number/ email Id with your stock broker / Depository Participant. Receive information of your transactions directly from Exchanges on your mobile / email at the end of day and alerts on your registered mobile for all debits and other important transactions in your demat account directly from NSDL/ CDSL on the same day." - Issued in the interest of investors.
- KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
- No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account."
www.indiainfoline.com is part of the IIFL Group, a leading financial services player and a diversified NBFC. The site provides comprehensive and real time information on Indian corporates, sectors, financial markets and economy. On the site we feature industry and political leaders, entrepreneurs, and trend setters. The research, personal finance and market tutorial sections are widely followed by students, academia, corporates and investors among others.
Risk Disclosure on Derivatives
- 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
- On an average, loss makers registered net trading loss close to Rs. 50,000.
- Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
- Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost.
Copyright © IIFL Securities Ltd. All rights Reserved.
Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213, IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248
We are ISO 27001:2013 Certified.
This certificate demonstrates that IIFL as an organization has defined and put in place best-practice information security processes.