This dichotomy of financial outcomes can be attributed to what the entity terms “prudent provisions,” amounting to Rs 568 crore. Delving deeper, this includes Rs 315 crore allocated to the MFI business, a reflection of the ongoing stress within the microfinance industry, and an additional Rs 253 crore directed towards a toll account based in Maharashtra. These measures, while denting the immediate profitability, underscore the bank’s commitment to fiscal prudence and risk mitigation.
Turning the lens towards the bank’s funding repository, a notable upswing in customer deposits has been observed. Year-over-year, deposits surged by a commendable 32.4%, ascending from Rs 1,64,726 crore as of September 2023 to a substantial Rs 2,18,026 crore by the end of September 2024. This growth trajectory is mirrored in the realm of retail deposits, which marked a 37.4% year-over-year increase, and CASA deposits, escalating by 37.5% within the same timeframe. The CASA Ratio itself reached an impressive 48.9% as of September 2024, indicating a robust liquidity position and depositor confidence. Additionally, the retail deposits, now constituting 80.4% of the total customer deposits as of September 2024, alongside a slightly improved cost of funds at 6.46% in Q2-FY25, reflect a strategic shift towards more stable and lower-cost funding sources.
Moving to the credit side of the financial spectrum, the loans & advances, inclusive of credit substitutes, reported a healthy 21.5% year-over-year growth, scaling to Rs 2,22,613 crore as of September 2024. The retail and corporate (non-infrastructure) loan segments fueled this acceleration, notching up 25% and 20% year-over-year growth, respectively. This expansion comes even as the bank’s legacy infrastructure book witnessed a 21% shrinkage, underscoring a strategic pivot towards more diversified and presumably less risky assets. In tandem, the microfinance portfolio’s share in the overall loan book subtly decreased from 6.3% in June 2024 to 5.6% in September 2024, mirroring broader industry trends and possibly, the bank’s recalibration of its microfinance strategy.
Addressing asset quality, a quintessential barometer of financial health, the Gross NPA edged down to 1.92% as of September 30, 2024, from 2.11% the previous year. Similarly, the Net NPA improved to 0.48% from 0.68%, painting a canvas of advancing asset quality. The PCR (Provision Coverage Ratio) fortified to 75.27% from 68.18%, further bolstering the bank’s shield against potential credit shocks.
From a revenue perspective, the bank witnessed an 18% year-over-year hike in fee and other income, which ascended to Rs 1,622 crore in Q2 FY25. This, coupled with a 21% increase in operating income, signifies a robust core operating performance, despite the rising operating expenses, which grew by 18% year-over-year.
The capital front revealed a resilient and strategic fortification with the successful raise of Rs. 3,200 crore of fresh equity capital from esteemed domestic institutional investors in July 2024. The subsequent merger with IDFC Ltd in October 2024 infused an additional Rs 618 crore into the net worth while concurrently reducing the outstanding share count by 16.64 crore shares. Factoring in these developments, the bank’s total CRAR as of September 30, 2024, stood at a healthy 16.60%, with the CET-1 ratio at 14.08%.
V Vaidyanathan, the MD & CEO of IDFC First Bank, in reflecting on these results, underscored the resilience and strength of the bank’s core drivers. The bank’s prowess in deposit growth—a testament to its strategic acumen—was particularly highlighted as a cornerstone of its financial narrative. With deposits blossoming by 32% year-over-year and a stable loan growth rate of 21.5%, the bank appears well-poised on its growth trajectory. Despite the headwinds faced by the microfinance segment, the bank’s proactive measures, including the insurance of MFI disbursals and the creation of a prudent Provisioning buffer, reflect a strategic and cautious approach towards managing this portfolio.
“Our core operating performance is strong, and we are confident in reviving our profitability moving forward,” Vaidyanathan opined, underscoring the optimism that permeates the bank’s strategic outlook.
To conclude, IDFC First Bank’s journey through the quarter has been anything but dull. Like a ship navigating through stormy seas, the bank has shown remarkable resilience, steering through financial headwinds with strategic acumen and prudent risk management. The bank’s narrative is a testament to the complex symphony of risks and rewards that define the banking sector, offering valuable insights into the art and science of banking. For those seeking to keep a pulse on the vibrant world of finance, the DeFi Daily News remains an invaluable resource for the latest and most trending articles in the domain, mirroring IDFC First Bank’s commitment to navigate the future with strategic insight and operational excellence.
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