IDFC FIRST Bank beats odds with record deposits—What happened in Q3 FY25?

Mumbai-based IDFC FIRST Bank Limited reported its unaudited financial results for the quarter and nine months ending December 31, 2024. While customer deposits and core operating profit showed healthy year-on-year (YoY) growth, profitability faced headwinds due to elevated provisions in the microfinance segment.

The bank’s key focus areas—retail banking, CASA (current account savings account) deposits, and digital banking—drove overall performance. However, challenges in the microfinance sector underscored the need for cautious portfolio management.

What Was the Growth in Customer Deposits and CASA Ratio?

Customer deposits surged by an impressive 28.8% YoY, reaching ₹2,27,316 crore as of December 31, 2024, up from ₹1,76,481 crore in the previous year. Retail deposits, which form a significant 80% of total deposits, increased by 29.6% YoY to ₹1,80,752 crore.

The CASA deposits—a critical marker of liquidity—grew by 32.3% YoY, rising to ₹1,13,078 crore. This led to a sustained CASA ratio of 47.7%, signaling strong customer trust and efficient deposit mobilisation. The bank’s cost of funds for the quarter stood at 6.49%, with the cost of deposits stable at 6.38%.

How Did Loans and Advances Contribute to Growth?

The bank’s loans and advances portfolio grew 22% YoY, climbing to ₹2,31,074 crore from ₹1,89,475 crore in December 2023. This growth was driven by a robust 21.3% YoY rise in the retail loan book and a 28.9% YoY expansion in corporate loans (excluding infrastructure).

Despite the positive momentum, IDFC FIRST Bank continued to reduce its legacy infrastructure book, which declined by 15% YoY to ₹2,546 crore, now constituting only 1.1% of its total funded assets.

Challenges emerged in the microfinance segment, with its share of the loan book dropping from 5.6% in September 2024 to 4.8% in December 2024.

Why Did Asset Quality Become a Focus Area?

IDFC FIRST Bank faced challenges in its microfinance portfolio due to heightened delinquencies in the sector. However, the bank’s overall asset quality metrics remained stable.

• Gross NPA (non-performing assets) stood at 1.94% as of December 2024, slightly improving from 2.04% in December 2023.
• Net NPA improved to 0.52%, down from 0.68% YoY.
• Excluding the microfinance business, gross NPA was 1.81%, reflecting better performance across retail, rural, and corporate loans.

To manage risks, the bank increased its provision coverage ratio (PCR) to 73.6%, compared to 66.9% a year ago.

What Impacted Profitability in Q3 FY25?

While the bank reported a 15% YoY growth in core operating profit, rising to ₹1,736 crore, net profit declined significantly by 53% YoY to ₹339 crore. The decline was attributed to:

• Reduced income from microfinance loans.
• Higher provisions in the microfinance segment.
• Increased credit costs in non-microfinance portfolios.

Net interest income (NII) grew by 14% YoY to ₹4,902 crore, while the net interest margin (NIM) fell marginally to 6.04% due to a rising share of wholesale banking and lower microfinance contributions.

How Is IDFC FIRST Bank Expanding Its Business Horizons?

Despite sector-specific challenges, IDFC FIRST Bank continued to strengthen its presence in retail and digital banking:

• Credit Cards: Over 3.2 million credit cards issued.
• FASTag Leadership: Maintained dominance with 22 million tags issued, making it India‘s largest issuer.
• Wealth Management: Assets under management (AUM) grew by 53% YoY to ₹42,778 crore.
• Government Tax Collection: The bank began collecting direct taxes for the Central Board of Direct Taxes (CBDT) and indirect taxes for the Central Board of Indirect Taxes and Customs (CBIC).

What Are Experts Saying About the Bank’s Performance?

Managing Director and CEO V. Vaidyanathan emphasized the bank’s steady growth trajectory. “Customer deposits have grown strongly at 29% YoY, reaching ₹2,27,316 crore, while loans and advances are up by 22% YoY to ₹2,31,074 crore. Challenges in the microfinance segment are transitional and should stabilize in the coming quarters,” he said.

Vaidyanathan reiterated the bank’s commitment to ethical banking and its long-term vision of balancing financial inclusion with profitability.

Future Outlook

IDFC FIRST Bank’s performance in Q3 FY25 reflects the resilience of its core banking operations amid sectoral challenges. The bank’s focus on universal banking, customer-centric services, and digital innovation positions it for sustainable growth. While challenges in the microfinance sector remain a near-term hurdle, the management’s proactive risk measures and diversified portfolio provide a solid foundation for long-term success.