IDFC First Bank had reported a substantial drop in its standalone net profit for the second quarter of the fiscal year. It recorded a decline of 73% year on year to Rs 201 crore. The downfall from Rs 751 crore in the same period last year is largely due to increased provisions, which the bank has termed “prudent.” This aside, the bank’s Net Interest Income or NII was significantly up by 21% at Rs 4,788 crore as against Rs 3,950 crore last year.
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Now, the bank’s earnings were badly marred by provisions amounting to Rs 568 crore. Of this, Rs 315 crore allocated to the Microfinance Institution (MFI) business was under stress, while Rs 253 crore was towards a toll account based in Maharashtra. The latter was involved in a mess of sorts with the decision by the state government to waive tolls on Light Motor Vehicles (LMVs), denting the revenue collection.
From a positive perspective, customer deposits of IDFC First Bank have shown significant growth at 32.4% year on year from Rs 1,64,726 crore to Rs 2,18,026 crore. This has been one of the more highlighted areas for the bank, retail deposits grew at an even healthy rate of 37.4%, which reflects a strong mobilization strategy by the bank. CASA deposits also rose strongly at 37.5% to Rs 1,09,292 crore with a CASA ratio of 48.9%.
Growth was registered in the bank’s loan book, too, with loans and advances, including credit substitutes, registering 21.5% year-on-year growth at Rs 2,22,613 crore. It is here that the retail loan segment continued its march, clocking in a growth of 25%. Corporate or non-infrastructure loans increased by 20%. However, legacy infrastructure booking came down 21% and now stands at 1.2% of the bank’s total funded assets.
Quality of asset improved as the Gross NPA ratio went down to 1.92% against 2.11% last year. Net NPA also improved to 0.48% against 0.68%. The PCR improved sharply to 75.27%, which reveals the bank was very cautious in its provisioning.
The operating income of the bank rose 21 per cent year-on-year to Rs 6,515 crore. Its operating expenses increased by 18 per cent to Rs 4,553 crore. Fee and other income was also up 18 per cent at Rs 1,622 crore.
The bank raised fresh equity capital of Rs 3,200 crore with domestic institutional investors in July 2024. Next, the bank completed its IDFC Ltd merger in October 2024, enhancing the net worth by Rs 618 crore while reducing the outstanding shares by as much as 16.64 crore shares. Capital Adequacy Ratio stood at 16.60%, and Common Equity Tier-1 was at 14.08%.
V Vaidyanathan, MD & CEO, IDFC First Bank showed his confidence both on core operating performance and strategic growth in deposits. He discussed the stress in the microfinance business due to the industry-wide situation while a significant proportion of the MFI book is now insured, which will absorb future risks to some extent.
In summary, though IDFC First Bank faces issues with its profit margins arising from increased provisions, the bank has had excellent growth in deposits, improved asset quality, and strategic capital management in place, which would put it in great stead for future profitability. The fact that the bank is focusing on retail growth and prudent provisioning is a balanced posture to navigate current market situations.
