IDFC FIRST Bank Q2 FY25 profit drops 73% amid strategic provisions

IDFC FIRST Bank reported a significant decrease in its net profit for Q2 FY25, dropping 73% year-over-year to INR 201 crore, impacted by provisions primarily for its microfinance segment and a legacy toll account in Maharashtra. However, the bank’s operational strength remains visible as customer deposits grew by 32.4% YoY, reaching INR 218,026 crore. Retail deposits, including Current and Savings Accounts (CASA), saw an increase of 37.4% YoY, indicating robust customer engagement and trust.

Provisions Impacting Profitability

IDFC FIRST Bank’s provision strategy this quarter played a pivotal role in its profit decline. The bank recorded a total provisioning of INR 1,732 crore, with INR 568 crore allocated to bolster risk resilience in light of rising stress in the microfinance sector and a waiver of toll fees at key Mumbai entry points. This included INR 315 crore provisioned for the microfinance portfolio, which has been impacted by the industry-wide challenges, and INR 253 crore for a toll account in Maharashtra impacted by a government toll fee waiver.

Insight from CEO
V Vaidyanathan, CEO of IDFC FIRST Bank, noted that the provisions were a necessary buffer, stating that the strategic provisioning, especially in the microfinance business and toll account, reflects the bank’s prudence in managing risk. He emphasized the long-term stability of the bank’s asset quality, underscored by improved collection efficiencies and steady reductions in the legacy infrastructure portfolio.

Strong Deposit and Loan Growth

Despite the decline in net profit, IDFC FIRST Bank continued to show strong growth in deposits and loan advancements. The bank’s CASA deposits, constituting 48.9% of total deposits, increased by 37.5% YoY, highlighting a substantial uptick in customer engagement. Additionally, the bank’s total loans and advances grew by 21.5% YoY to INR 222,613 crore, with a retail book growth of 25% and corporate loans rising by 20% during the quarter. The cost of funds, excluding legacy borrowings, decreased to 6.37%, showing an efficient balance sheet performance.

Enhanced Asset Quality

IDFC FIRST Bank reported a Gross NPA of 1.92% and a Net NPA of 0.48% for Q2 FY25, indicating improved asset quality compared to the previous year. Excluding infrastructure loans, which the bank is gradually winding down, the adjusted GNPA would be 1.66%. The bank’s Provision Coverage Ratio (PCR) reached 75.27%, up from 68.18% YoY, further demonstrating its commitment to maintaining asset quality amid economic uncertainties.

Insights from Experts

Financial analysts view the substantial provisions as a conservative approach that, while impacting short-term profitability, reinforces the bank’s balance sheet. The bank’s capital position received a boost from its merger with IDFC Ltd., adding INR 618 crore to net worth and reducing outstanding shares by 16.64 crore. Post-merger, the CRAR stands at 16.60%, with CET-1 at 14.08%, indicating a solid capital structure.

IDFC FIRST Bank’s Digital and Social Banking Push

IDFC FIRST Bank has positioned itself as a new-age bank focused on ethical and technology-driven banking. Its recent initiatives in social banking, with a focus on bottom-of-the-pyramid customers, reflect a commitment to social impact and financial inclusion. Additionally, its tech-centric approach with a robust digital platform and a host of customer-friendly features has strengthened its competitive edge in a growing digital banking landscape.

While Q2 FY25 posed challenges, particularly from external pressures on the microfinance sector, the bank’s strategic provisioning, strong deposit growth, and digital advancements position it for a stable future. Experts anticipate that the strategic provisioning may enable IDFC FIRST Bank to navigate upcoming quarters with greater resilience, especially as it looks to leverage its robust CASA growth and digital initiatives.