“We were affected by the microfinance impact, but that’s now behind us,” said V Vaidyanathan, MD & CEO of IDFC First Bank, in an interview with ET Now.
He added, “You’ll now see our net interest margin improving. Repo rate pass-throughs are complete, the balance sheet is growing well, and asset quality remains strong.”
Asset quality steady, credit costs declining
Vaidyanathan pointed out that Special Mention Account (SMA) numbers and slippages have improved consistently over the past six quarters.
“Our SMA-1, SMA-2, and NPA numbers are coming down quarter after quarter. It’s very direct — as SMA comes down, credit cost falls,” he explained.
The bank’s gross and net NPAs have both declined on a year-on-year and sequential basis, indicating recovery. “With the MFI clean-up largely complete, we’re comfortable with credit quality and confident of stronger income growth ahead,” he said.
Deposit base expands 6x since merger
IDFC First Bank’s deposit franchise continues to strengthen rapidly. From ₹40,000 crore in December 2018 — when the merger took place — deposits have surged to ₹2.7 lakh crore today.
“That’s more than a sixfold rise,” Vaidyanathan said, attributing the growth to brand credibility, strong corporate governance, and steady product performance.
“Every year, deposits grow by ₹45,000–50,000 crore. That shows the trust we’ve built,” he said.
Margins to improve as cost of funds eases
The bank’s net interest margin (NIM) stood at 5.59% this quarter, but Vaidyanathan expects this to climb past 5.8% in FY26.
“NIM dipped this quarter as the repo rate transmission was fully passed on to customers. But now, as fixed deposits reprice lower over the next two quarters, margins will start improving,” he said.
He added that it takes about 12–15 months for FDs to reprice, and IDFC First Bank is “already six months into that cycle.”
CASA ratio remains robust above 50%
The bank’s CASA ratio has remained strong at over 50%, supported by competitive savings rates.
“Yes, we have offered attractive rates, but we’ve also started rationalizing them. The 0–5 lakh bracket is now at 3%,” Vaidyanathan said, adding that the bank aims to stabilize its CASA ratio in the 45–50% range, which he called “healthy and sustainable.”
Return on Assets (ROA) to recover
The bank’s return on assets (ROA) saw pressure over the past few quarters due to the MFI clean-up, but Vaidyanathan expects it to improve steadily from Q3 onward.
“Think of it as a one-and-a-half-year issue. The drag is behind us. With new businesses turning profitable and credit costs normalizing, ROA will rise again,” he said.
ECL, risk weights, and operational guidelines ‘marginally positive’
On the new Expected Credit Loss (ECL) norms and related regulatory changes, Vaidyanathan said the initial assessment looks favourable.
“Our early read suggests that the combined impact of ECL, revised risk weights, and operational risk norms will be marginally positive for us,” he said.
Microfinance book to stabilize by Q4
The lender expects its microfinance book to bottom out by Q4 FY25. “There’s still some runoff, but the book should stabilize by Q4. Beyond that, growth will resume alongside the broader portfolio,” Vaidyanathan noted.
FY26–27 outlook: Growth momentum, margin expansion
Looking ahead, the bank has guided for NIMs above 5.8% and steady balance sheet growth.
“With deposit costs easing, income rising, and asset quality steady, the next few quarters should show consistent improvement in both NIM and ROA,” Vaidyanathan said.