IDFC First Bank , a prominent player in India's banking sector, has reported a significant decline in its fourth-quarter profits for the fiscal year 2024-25, while simultaneously showcasing robust growth in customer deposits. The bank's financial results paint a mixed picture of challenges and opportunities in the current economic landscape.

Profit Decline and Financial Performance

IDFC First Bank experienced a sharp 58% year-on-year (YoY) decrease in its standalone net profit for Q4, which stood at Rs 304.10 crore. This substantial decline in profitability comes despite a 9.8% YoY increase in Net Interest Income (NII) to Rs 4,907.00 crore.

The bank's financial performance for the quarter ending March 2025 reveals some interesting trends:

Customer Deposits and Asset Quality

Despite the profit decline, IDFC First Bank reported a strong 25.2% YoY growth in customer deposits. This significant increase in deposits suggests continued customer trust and the bank's ability to attract funds, which is crucial for its lending operations and overall growth strategy.

Net Interest Margin (NIM) Pressure

The bank's Net Interest Margin (NIM) on Assets Under Management (AUM) experienced a slight compression, slipping to 5.95%. This decrease in NIM could be attributed to various factors, including competitive pressures in the lending market and changes in the interest rate environment.

Credit Costs and Earnings

IDFC First Bank's Q4 results showed credit costs above guidance and earnings below estimates. The FY25 credit cost ratio was 2.46%, higher than the 2.25% guidance. Both Net Interest Income and profit missed expectations. NII growth was the lowest in 22 quarters, and NIM fell to a 10-quarter low.

Analyst Perspectives

Analysts have mixed views on IDFC First Bank's performance and future prospects. Ratings range from 'Underweight' to 'Add', with price targets between Rs 50 and Rs 70. The varied opinions reflect the complex nature of the bank's current situation, balancing strong deposit growth against profitability challenges.

Nuvama, a financial services firm, has maintained a 'Hold' rating on IDFC First Bank with a target price of Rs 68.00. This rating indicates a cautious outlook, balancing the bank's growth in deposits against its profitability challenges.

Conclusion

While IDFC First Bank faces headwinds in terms of profitability, particularly due to higher credit costs and lower-than-expected earnings, its strong growth in customer deposits provides some positive signals. The bank's ability to navigate these challenges while capitalizing on its deposit growth will be crucial for its performance in the coming quarters.

Investors and stakeholders will likely keep a close eye on how IDFC First Bank addresses its profitability concerns, manages its asset quality, and leverages its growing deposit base to drive sustainable growth in the competitive banking landscape.

IDFC FIRST Bank released its financial results for Q4 FY25 and the full fiscal year 2024-25, revealing a mixed performance with strong deposit growth but declining profitability.

Key Highlights

• Net profit for Q4 FY25 declined 58% year-over-year to Rs. 304.00 crore, down from Rs. 724.00 crore in Q4 FY24.
• For the full year FY25, net profit decreased by 48.4% to Rs. 1,525.00 crore, compared to Rs. 2,957.00 crore in FY24.
• Customer deposits grew 25.2% YoY to Rs. 2,42,543.00 crore as of March 31, 2025.
• Gross loans and advances increased 20.4% YoY to Rs. 2,41,926.00 crore.
• Net Interest Income (NII) for Q4 FY25 grew 9.8% YoY to Rs. 4,907.00 crore.

Deposit and Loan Growth

The bank demonstrated strong growth in its deposit base:

• Retail deposits grew 26.4% YoY to Rs. 1,91,268.00 crore.
• CASA (Current Account Savings Account) deposits increased 24.8% YoY to Rs. 1,18,237.00 crore.
• CASA ratio stood at 46.9% as of March 31, 2025.

On the lending side, retail, rural, and MSME book grew 18.6% YoY to Rs. 1,97,568.00 crore.

Asset Quality

Asset quality metrics showed some improvement:

• Gross Non-Performing Assets (GNPA) ratio improved to 1.87% as of March 31, 2025, compared to 1.94% in the previous quarter.
• Net Non-Performing Assets (NNPA) ratio stood at 0.53%, a slight increase from 0.52% in the previous quarter.
• Provision Coverage Ratio (PCR) improved to 72.3% as of March 31, 2025.

Profitability and Income

While deposit and loan growth remained strong, profitability was impacted:

• Net Interest Margin (NIM) declined to 5.95% in Q4 FY25 from 6.04% in Q3 FY25.
• Fee and other income grew by 5.7% YoY to Rs. 1,702.00 crore in Q4 FY25.
• Operating expenses increased by 12.2% YoY to Rs. 4,991.00 crore in Q4 FY25.

Capital Position and Future Plans

The bank's capital position remains strong:

• Capital Adequacy Ratio stood at 15.48% as of March 31, 2025.
• The Board approved a fresh equity capital raise of approximately Rs. 7,500.00 crore through the issuance of Compulsorily Convertible Preference Shares (CCPS).
• A dividend of Rs. 0.25 per share was recommended, subject to shareholders' approval.

Management Commentary

V. Vaidyanathan, Managing Director and CEO of IDFC FIRST Bank, commented on the results: "Our customer deposits grew well at 25% YoY and the CASA ratio continues to remain strong at 46.9%, reflecting the strength of our deposit franchise. Our funded asset book grew by 20.4%. Importantly, the Bank's asset quality remains resilient, with GNPA and NNPA at 1.87% and 0.53% respectively."

He added, "We continue to be committed to grow responsibly, serve high-quality products and services, lead with innovation and build customer centric propositions."

The bank's performance in FY25 was impacted by challenges in the microfinance business and increased provisions. However, the strong growth in deposits and advances, along with the planned capital raise, positions IDFC FIRST Bank for potential growth in the coming fiscal year.