IDFC First Bank has released its financial results for the first quarter, showcasing a mixed performance with strong deposit growth but challenges in the microfinance sector.

Balance Sheet Growth and Deposit Milestone

The bank reported a robust 18.00% year-on-year growth in its balance sheet size, reaching ₹3.60 lakh crore. Customer deposits crossed a significant milestone of ₹2.57 lakh crore, growing at an impressive 26.00% year-on-year. The CASA (Current Account Savings Account) ratio improved to 48.00%, with CASA deposits growing strongly at 30.00% year-on-year.

Branch Expansion and Asset Growth

During the quarter, IDFC FIRST Bank added 14 new branches, bringing its total branch count to 1,016. The bank's funded assets registered a strong growth of 21.00% year-on-year, reaching ₹2.53 lakh crore. This growth was primarily led by segments such as mortgages, vehicles, business banking, working capital loans, and the wholesale book. Notably, the wholesale book grew at a faster pace of 39.00% year-on-year.

Microfinance Challenges

IDFC FIRST Bank faced significant challenges in its microfinance business, with the book declining by 37.00% year-on-year to ₹8,354 crore. This decline was attributed to sector-wide challenges in the microfinance industry.

Asset Quality

The bank's asset quality metrics showed a slight deterioration:

Excluding the microfinance book, the GNPA ratio increased from 1.63% to 1.70% at the bank level.

Profitability and Net Interest Margin

IDFC FIRST Bank reported a profit after tax of ₹463 crore for the quarter, representing a 52.00% sequential growth. However, on a year-on-year basis, the profit declined by 32.00%, primarily impacted by challenges in the microfinance business and some increase in provisions in other segments.

The bank's net interest margin (NIM) moderated by 24 basis points to 5.71% due to repo rate pass-through and the decline in the microfinance book. Management expects the margins to improve by the fourth quarter, potentially reaching around 5.80%, subject to any further repo rate cuts.

Capital Raise and Credit Cost Guidance

IDFC FIRST Bank expects to conclude its ₹7,500 crore capital raise in Q2. The management has guided for a credit cost of around 2.00-2.05% for the full year, maintaining its focus on long-term bank-building strategy while acknowledging short-term margin pressures from rate cuts and deposit repricing.

Conclusion

IDFC FIRST Bank's Q1 results reflect a resilient performance in core banking operations, with strong deposit growth and asset expansion. However, challenges in the microfinance sector and margin pressures have impacted overall profitability. The bank remains focused on its long-term strategy and expects improvements in the coming quarters as the benefits of deposit repricing and stabilization in the microfinance book materialize.

IDFC First Bank , a prominent player in India's banking sector, has reported mixed financial results for the first quarter, with a significant decline in net profit despite revenue growth. The bank's performance highlights both challenges and potential improvements in the near future.

Financial Performance

IDFC First Bank reported a 32.00% year-on-year decline in standalone net profit to Rs 463.00 crore. This substantial decrease was primarily attributed to a 67.00% increase in provisions and contingencies, mainly due to slippages in the micro-finance book. Despite the profit decline, the bank's revenue showed positive growth.

Margin Contraction and Future Outlook

The bank experienced margin contraction in the first quarter, which CEO V. Vaidyanathan attributed to a reduced micro-finance share in the loan book composition. However, he expressed optimism, expecting margin relief from the third quarter onwards as repo rate cuts impact fixed deposit repricing.

Asset Quality and Credit Costs

While micro-finance book slippages contributed to increased provisions, non-micro-finance slippages were described as seasonal and system-wide. The bank projects a decrease in credit costs in the latter half of the fiscal year, which could positively impact profitability.

Business Growth and Customer Response

IDFC First Bank is witnessing strong customer response and improved branch productivity. Additionally, rural wage growth trends remain positive, potentially supporting the bank's business in rural areas.

Analyst Perspectives

• Morgan Stanley maintained an 'Equal-weight' rating while trimming their target price for IDFC First Bank.
• Jefferies retained a 'Buy' rating and increased their target price, citing potential for lower future slippages and credit costs.

Looking Ahead

Despite the current challenges, IDFC First Bank's management appears confident about future improvements. The expected margin relief, projected decrease in credit costs, and positive customer response could contribute to better performance in upcoming quarters.

Investors and market analysts will be closely monitoring IDFC First Bank's performance in subsequent quarters to see if the bank can realize these expected improvements while managing asset quality effectively.