IDFC FIRST Bank reports 30.2% rise in core operating profit, but PAT falls due to flood-related provisions

IDFC FIRST Bank has announced its financial results for the first quarter of FY25, highlighting a significant 30.2% increase in core operating profit year-on-year (YOY). Despite this impressive growth, the bank’s Profit After Tax (PAT) saw a decline due to increased provisions related to the Joint Liability Group (JLG) business, which was adversely impacted by recent floods in Tamil Nadu.

Significant growth in deposits and reductions in high-cost borrowings

For the quarter ending June 30, 2024, IDFC FIRST Bank reported a substantial 35.8% increase in total deposits, rising from ₹1,54,427 crore in June 2023 to ₹2,09,666 crore. Customer deposits alone saw a 37.8% increase, growing from ₹1,48,474 crore to ₹2,04,572 crore during the same period. The bank’s Current Account Savings Account (CASA) deposits rose by 36.1%, and the CASA ratio stood at 46.6%.

Retail deposits demonstrated robust growth, increasing by 43.5% YOY, reaching ₹1,64,001 crore. These deposits now constitute 80.2% of the bank’s total customer deposits. Additionally, the bank has successfully reduced its legacy high-cost borrowings from ₹16,055 crore in June 2023 to ₹10,084 crore by June 2024. The opening of 11 new branches in Q1 FY25 brought the total branch count to 955.

Loans and advances reflect strategic shifts

IDFC FIRST Bank’s loans and advances, including credit substitutes, grew by 22.0% YOY, reaching ₹2,09,361 crore. The bank has continued its strategy to wind down infrastructure financing, which now constitutes only 1.3% of total funded assets. The exposure to the top 20 single borrowers improved, dropping from 7.0% to 5.4%, and the Credit to Deposit Ratio improved from 107.3% to 98.1%.

Asset quality improvements and higher provisions

The bank’s asset quality showed improvement, with Gross Non-Performing Assets (NPA) decreasing from 2.17% to 1.90% YOY. Net NPA also improved from 0.70% to 0.59%. The Gross NPA of the Retail, Rural, and Micro, Small, and Medium Enterprises (MSME) finance segment improved from 1.53% to 1.46%, while the Net NPA in this segment decreased from 0.52% to 0.46%.

Despite these improvements, the bank faced a rise in SMA-1 and SMA-2 in the Retail, Rural, and MSME finance portfolio, driven by an increase in SMAs of the JLG book due to floods. The Provision Coverage Ratio increased from 68.11% to 69.38%, and was at 73.48% excluding the infrastructure book.

Profitability under pressure from increased provisions

Net Interest Income (NII) for Q1 FY25 grew by 25% YOY, reaching ₹4,695 crore. However, the Net Interest Margin (NIM) slightly reduced from 6.33% to 6.22%. Fee and other income increased by 19% YOY to ₹1,595 crore. Core operating income grew by 24% to ₹6,290 crore, while core operating profit saw a 30% increase to ₹1,858 crore. Operating expenses rose by 21% to ₹4,432 crore.

Provisions surged by 109% YOY to ₹994 crore due to increased provisions for the JLG portfolio, influenced by Tamil Nadu floods and seasonal impacts. Excluding these provisions, PAT would have been higher by ₹100 crore. As a result, net profit decreased by 11% YOY to ₹681 crore.

Strong capital adequacy and outlook

IDFC FIRST Bank’s Capital Adequacy Ratio stood strong at 15.88% with a CET-1 Ratio of 13.34% as of June 30, 2024. Including capital raised in July 2024, the ratio would increase to 17.21% with a CET-1 Ratio of 14.67%.

V Vaidyanathan, Managing Director and CEO of IDFC FIRST Bank, highlighted the bank’s strong deposit growth driven by high-quality service and excellent corporate governance. He noted that while the bank faced challenges due to the floods and seasonal factors, the core operating profit remained strong, reflecting the bank’s robust operational performance.