IDFC First Bank – Quarterly Results Update

Net Interest Income stood at Rs. 3,745 crores in Q1FY24, showing a growth of 4.1% QoQ / up 36.1% YoY but marginally lower than market estimates of Rs. 3,756 crores. Pre-provision

operating profit (PPOP) stood at Rs. 1,427 crores in Q1FY24, down 6.3% QoQ / up 44.6% YoY. Provisions declined to Rs. 476 crores in Q1FY24 from Rs. 482 crores in Q4FY23 and Rs. 308 crores in Q1FY23. The bank’s quarterly net profit stood at Rs. 765 crores in Q1FY24, down 4.7% QoQ / 61.3% YoY and beating market expectations of Rs. 760 crores. NIM stood at 6.33% in Q1FY24, down 8bps QoQ / up 44 bps YoY. 

Gross NPA stood at 2.17% in Q1FY24, down 34bps QoQ / down 119 bps YoY, mainly on account of healthy retail, rural and SME business portfolio. Net NPA stood at 0.70% in Q1FY24, down 16bps QoQ / down 60 bps YoY. Capital Adequacy Ratio stood at 16.96% in Q1FY24 compared to 16.82% in Q4FY23 and 15.42% in Q1FY23. 

Gross Deposits showed decent growth and stood at Rs. 1,48,474 crores in Q1FY24, up 8.5% QoQ / up 44.3% YoY, aided by strong retail deposit growth. Gross Advances stood at Rs. 1,71,578 crores in Q1FY24, up 6.8% QoQ / up 24.6% YoY. CASA declined to 46.5% in Q1FY24 from 49.8% in Q4FY23 and 50.0% in Q1FY23. This decline was because the bank raised more fixed deposits than CASA deposits. The Board has approved the raising of funds up to an amount aggregating to Rs. 3,000 crores.

Key Concall Highlights

• IDFC First Bank’s total deposits have grown from Rs. 38,455 crores in FY18 to Rs. 1,48,000 crores as of June 2023, registering a CAGR of 36% during the period. The bank has turned around its total deposits composition from earlier 73% wholesale deposits and 27% retail deposits to today 77% retail deposits and 23% wholesale deposits.

• The bank’s asset quality comprising retail, rural and SME financing has a gross NPA of only 1.53% and the net NPA in the segment is only 0.52%. The NPA in its infrastructure financing book is still quite high, standing at around 23.7%. But the infra book has come down to only Rs. 3,571 crores.

• The high-cost legacy borrowings will run down in the next two to three years and have come down to Rs. 16,000 odd crores.

• The management of the bank believes that the repricing of the deposits is already factored in and they are not seeing any more increase and margins should be stable from here.

• The bank’s loan against the property segment has almost remained flat sequentially as they had sold on a small part of the book.

• The bank’s opex remains elevated due to the bank venturing into new businesses such as Commercial Banking, Credit Cards, and Home Loans which will drive its profitability in the long run.

Valuation and Outlook

IDFC First Bank reported healthy Q1FY24 results across all key parameters, showing some weakness in its net interest income. This was on account of a faster increase in the cost of funds in comparison to yield on advances. It is worth noting that the bank’s Retail, Rural and SME business financing business has low NPA levels because of its high-quality underwriting, credit bureaus, technology, and cash-flow-based lending capabilities. We believe that the bank’s focus on fee-based products will help the bank to grow its non-interest income and profitability in the coming quarters. Thus, this accredited income will help to set off the NIM compression which the bank may face due to a peak in the interest rate cycle. Thus, we believe that the bank is well-poised for growth and our outlook remains positive.