IDFC FIRST Bank surges past Rs 1,500cr profit mark despite microfinance woes

How Did IDFC FIRST Bank Perform Financially in FY25?

IDFC FIRST Bank Limited announced its audited standalone and consolidated financial results for the quarter and financial year ended March 31, 2025, showcasing notable growth despite sectoral challenges. The bank reported a net profit of ₹1,525 crore for FY25, although this marked a 48.4% year-on-year decline, primarily due to increased provisions related to its microfinance portfolio. However, core operating profit rose by an impressive 17% year-on-year, reflecting underlying resilience in its mainstream banking operations.

Total customer deposits surged by 25.2% year-on-year, reaching ₹2,42,543 crore, while retail deposits grew 26.4% to ₹1,91,268 crore, signifying deeper consumer engagement.

Historically, the Indian banking sector has witnessed increasing reliance on retail deposits as a source of low-cost funds, and IDFC FIRST Bank’s performance mirrors this broader trend.

What Drove the Growth in Deposits and Advances for IDFC FIRST Bank?

The bank’s deposit growth was underpinned by strong CASA and retail deposit performance. CASA deposits rose 24.8% year-on-year to ₹1,18,237 crore, with a CASA ratio of 46.9%, maintaining a relatively stable low-cost deposit base. Retail deposits now constitute 79% of the overall customer deposit portfolio, indicating a shift towards more granular, stable funding sources.

Loans and advances expanded robustly, rising 20.4% year-on-year to ₹2,41,926 crore. Growth was broad-based across Retail, Rural, and MSME segments, while the microfinance loan book was deliberately reduced by 28.3% to mitigate exposure to vulnerable segments.

The legacy infrastructure loan book shrank by 17% year-on-year to ₹2,348 crore, representing less than 1% of funded assets, further enhancing the bank’s asset quality profile.

How Resilient Was IDFC FIRST Bank’s Asset Quality in FY25?

Despite industry-wide stress in the microfinance sector, IDFC FIRST Bank’s asset quality showed remarkable resilience. The gross NPA ratio improved sequentially to 1.87%, while net NPA increased slightly to 0.53%.

Excluding the microfinance portfolio, the Retail, Rural, and MSME segments recorded a decline in gross NPA to 1.40%, with net NPA remaining stable at 0.56%. The provision coverage ratio was healthy at 72.3%, ensuring a strong buffer against potential asset risks.

Gross slippages across the overall portfolio excluding microfinance fell quarter-on-quarter, demonstrating operational stability. The microfinance segment, while facing elevated slippages, remains prudently managed, with insurance coverage of 66% and ₹315 crore of provision buffers left untouched.

Across the broader banking industry, similar trends of microfinance stress were observed in FY25, driven by post-pandemic repayment challenges and rural economic pressures.

How Did IDFC FIRST Bank Manage Profitability Amid Sectoral Challenges?

Profitability metrics remained strong at the core level. Net Interest Income (NII) grew 9.8% year-on-year to ₹4,907 crore in Q4 FY25. The full-year net interest margin (NIM) was 6.09%, slightly lower sequentially due to the decline in microfinance.

Fee and other income rose 5.7% year-on-year, supported by growth in businesses like wealth management and credit cards. Operating expenses rose 12.2% year-on-year, reflecting investments in digital infrastructure and branch expansion.

Core operating profit excluding trading gains grew 17.2% for the full year, reaching ₹7,069 crore. Excluding microfinance impacts, the core operating profit increased 19.9% in Q4 FY25, underlining the bank’s ability to sustain strong profitability momentum.

However, net profit for Q4 FY25 declined to ₹304 crore, compared to ₹724 crore in Q4 FY24, as higher provisions overshadowed operating strength.

In the broader Indian private banking sector, margin compression was a common theme during FY25, with several banks reporting declines in net interest margins under competitive pressures.

What Are IDFC FIRST Bank’s Capital Raising Plans?

In a critical development, IDFC FIRST Bank’s Board approved a ₹7,500 crore capital raise through the issuance of Compulsorily Convertible Preference Shares (CCPS). The infusion will be led by Currant Sea Investments B.V., affiliated with Warburg Pincus LLC, and Platinum Invictus B 2025 RSC Limited, part of the Abu Dhabi Investment Authority‘s private equity arm.

Following the conversion of CCPS into equity shares, the bank’s Capital Adequacy Ratio (CRAR) would improve to 18.20%, with Tier-I capital standing at 15.89%, based on March 2025 financials.

The Board also recommended a dividend of ₹0.25 per share, balancing growth aspirations with shareholder returns.

Such capital strengthening is seen across India’s private sector banks as a strategic move to capture future credit demand while maintaining regulatory capital thresholds.

What Does the Latest Market Sentiment Reveal About IDFC FIRST Bank’s Stock?

As of April 25, 2025, IDFC FIRST Bank’s stock closed at ₹66.15 on the BSE, posting a 2.19% drop ahead of earnings. However, the stock gained 15% over the past month, reflecting renewed optimism around the bank’s strategic moves.

Over the past year, the stock declined by 21%, a performance heavily influenced by rising concerns about the microfinance segment’s asset quality and higher provisioning needs.

Sentiment among analysts remains cautious but constructive. Motilal Oswal Financial Services maintains a ‘Neutral’ rating with a target price of ₹65, emphasizing the importance of sustained improvement in asset quality metrics.

Technical analysis points to strong support around ₹60–62, with potential upside resistance at ₹70. Traders suggest a “buy on dips” strategy, contingent on further reduction in stress assets.

How Have Institutional Investors Positioned Themselves on IDFC FIRST Bank?

Institutional flows have shown a mixed trend. Foreign Institutional Investors (FIIs) reduced their holdings from 27.12% to 25.68% in the March 2025 quarter, signalling external caution around emerging market banking risks.

In contrast, Domestic Institutional Investors (DIIs), including mutual funds, increased their stake from 4.56% to 7.64%, reflecting growing domestic confidence in the bank’s long-term trajectory.

Across Indian private banking peers, FII selling and DII buying was a noticeable trend in FY25, driven by local liquidity strength and selective preference for retail-driven banking models.

How Is IDFC FIRST Bank Positioned for the Future?

IDFC FIRST Bank continues to build its brand as a modern, digital-first retail bank anchored around strong ethical values and customer-centricity. With 35.5 million customers and a significant digital footprint, the bank is leveraging advanced cloud-native technology and AI-driven platforms to scale its operations.

Notably, its mobile app remains one of the highest-rated globally, securing top positions for user experience and customer financial wellness initiatives.

Strategically, the ₹7,500 crore capital infusion provides a strong runway for FY26 expansion plans. Management expects to continue pursuing disciplined growth across Retail, MSME, and Rural segments, with a sharpened focus on maintaining asset quality.

CEO V Vaidyanathan underlined the bank’s commitment to responsible growth, innovation, and long-term customer engagement, positioning IDFC FIRST Bank favourably in India’s rapidly evolving financial services landscape.

Given the strengthening retail deposit franchise, resilient core operations, technological leadership, and capital buffer, IDFC FIRST Bank appears well-positioned to drive sustainable growth into FY26 and beyond.