IDFC First Bank has implemented a comprehensive revision to its savings account interest rates, effective January 9, 2025, reducing the headline rate by 50 basis points from 7% to 6.5% per annum. The rate adjustment, coupled with a restructuring of balance slabs, represents a strategic shift from the bank's earlier aggressive high-rate approach and will directly impact depositors across different balance categories.

Revised Interest Rate Structure

The new progressive interest rate structure shows significant changes across balance categories, with the most substantial impact on mid-tier deposit segments:

This represents a departure from the earlier framework where balances above ₹5 lakh earned a flat 7% up to ₹5 crore. The revised structure now rewards mid-sized balances more gradually, while high-value deposits see a sharper tapering of returns.

Progressive Interest Calculation Method

IDFC First Bank continues to apply slab-wise interest calculation rather than a single rate on the entire balance. Under this progressive system, different portions of a customer's balance earn interest at different rates based on the applicable slabs.

For retail customers maintaining balances above ₹10 lakh, the 50 basis points reduction at the top end will decrease overall yield, even though the monthly crediting mechanism remains unchanged.

Market Performance and Strategic Impact

Shares of IDFC First Bank gained as much as 2.50% following the rate cut announcement, closing 2.10% higher at ₹86.13. The market views this rate reduction positively as it will help reduce the bank's cost of funds, which already fell 19 basis points sequentially to 6.23% in the September quarter.

At 50.10%, IDFC First Bank maintains one of the highest CASA ratios in the private banking space, with current and savings accounts comprising 43% of total deposits. The bank is working to bring down its Credit-Deposit ratio from the current 94% to the mid-80s range.

Management Strategy and Outlook

The rate revision reflects management's confidence in deposit growth momentum after focusing on increasing deposits before implementing rate cuts. Brokerage firm Nomura has initiated coverage on IDFC First Bank with a "buy" rating and a price target of ₹105, implying a potential upside of 25% from current levels.

For depositors, particularly those with balances above ₹10 lakh, the revised structure may prompt reassessment of whether surplus cash should continue in savings accounts or be partially deployed into higher-yielding alternatives, depending on liquidity needs and risk appetite.

Nomura has initiated coverage on IDFC First Bank with a Buy rating and target price of ₹105, citing clear operating leverage inflection and strong earnings momentum as the bank transitions into sustained profitability. The brokerage believes the multi-year investment and balance sheet transformation is largely complete, setting the stage for broad-based improvement in returns.

Balance Sheet Transformation Shows Strong Progress

IDFC First Bank has built a robust liabilities franchise with significant improvements in its funding profile. The bank's funding mix transformation demonstrates the success of its strategic initiatives over recent years.

Business Model Shift Drives Growth Visibility

The bank has structurally shifted from wholesale-led to retail-focused operations, providing strong visibility on future growth. This transformation represents a fundamental change in the bank's strategic positioning.

The bank's fee income profile stands at over 2.00% of average assets, comparing favorably with industry peers and demonstrating revenue diversification.

Sharp Earnings Inflection Expected

Nomura forecasts significant improvement in profitability metrics driven by operating leverage and enhanced efficiency. The brokerage expects core pre-provision operating profit to grow at a strong pace over FY26-28.

The brokerage estimates a sector-leading EPS CAGR of 67% over FY26-28, supported by net interest margin improvement of about 14 basis points and credit cost decline of roughly 35 basis points.

Operating Leverage Emerges as Key Driver

Operating expenses were elevated between FY19 and FY25 as the bank invested heavily in branches, technology, people and new businesses. However, operating leverage is now visible at segment level across retail liabilities, assets and credit cards. As growth normalizes and scale benefits accrue, efficiency ratios are expected to improve significantly.

Margin Stabilization with Upside Potential

Nomura believes net interest margin pressure from repo-linked repricing and loan-mix changes is largely behind the bank. As term deposits reprice, NIMs are expected to bottom out in FY26, recover gradually in FY27 and stabilize thereafter. Savings account rate cuts remain an upside lever, with 50-100 basis point reduction potentially adding meaningfully to margins and returns.

Asset Quality Concerns Addressed

Asset quality stress has been concentrated in the microfinance portfolio where corrective measures have been implemented, while credit card and consumer loan quality remains contained. Nomura builds in lower credit costs of 1.90% and 1.80% for FY27 and FY28 respectively, compared with higher levels in FY25 and FY26.