IDFC First Bank Limited — Q1 FY26 earnings call

Call held 26 Jul 2025

Management summary

IDFC First Bank reported a quarter of strong deposit and asset growth, with customer deposits exceeding ₹2.5 lakh crores and funded assets growing 21% YoY. While NII saw a 5.1% YoY increase, NIM moderated to 5.71% due to repo rate transmission and a 37% degrowth in the microfinance book. Asset quality saw a marginal increase in GNPA to 1.97%, and PAT grew 52% sequentially to ₹463 crores. The bank is poised for a significant capital infusion of ₹7,500 crores in Q2, which will substantially strengthen its capital adequacy.

Highlights

  • Customer deposits crossed ₹2.5 lakh crores, growing strongly at 26% YoY to ₹2.57 lakh crores, with retail deposits crossing ₹2 lakh crores.

  • CASA ratio improved sequentially to 48% at June 2025.

  • Credit-to-deposit ratio reduced to 93.4% from 98.1% last year, with incremental CD ratio at 75.8%.

  • Cost of funds declined by 9 bps to 6.42% and cost of deposits by 1 bps to 6.37% during the quarter.

  • Operating expenses growth moderated to 11% YoY, declining 1.4% sequentially, indicating strong cost management.

Concerns

  • Gross NPA increased marginally from 1.87% in March to 1.97% in June, with Net NPA rising from 0.53% to 0.55%.

  • Microfinance business saw a degrowth of 37% YoY, impacting overall profitability and contributing to higher provisions.

  • Net Interest Margin (NIM) on AUM moderated by 24 bps to 5.71%, primarily due to repo rate pass-through and MFI book decline.

  • Gross slippages increased sequentially by 14% from ₹2,175 crores in Q4 FY25 to ₹2,486 crores in Q1 FY26, including a ₹108 crore corporate case.

Key financials

  1. Customer Deposits ₹2.57L Cr +26%YoY
  2. Funded Assets ₹2.53L Cr +21%YoY
  3. NII ₹4,933 Cr +5.1%YoY
  4. Net Interest Margin (on AUM) 5.7%
  5. Gross NPA 2%
  6. Profit After Tax ₹463 Cr -32%YoY
  7. CASA Ratio 48%

What they filed

Q1 FY27: revenue up 14.6%, net profit up 132.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue8,957 9,343 9,413 9,642 9,937 +11%10,417 +11%10,553 +12%11,051 +15%
Net profit201 339 304 463 352 +75%503 +48%319 +5%1,075 +132%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Wholesale Book
    39% Growth
  • Non-Fund Book
    25% Growth
  • Credit Card Spends
    35% Growth
  • Microfinance Business
    -37% Degrowth₹8,354 Cr Book Size

Capital allocation

high confidence
  • Liquidity Liquidity disclosed Capital adequacy (including Q1 FY26 profits) stood at 15.01%, with CET 1 ratio at 12.80%. With the announced capital raise of ₹7,500 crores, CRAR is expected to be 17.6% and Tier 1 15.38%. The LCR for the quarter was stable at 118%. The bank holds a contingency provision of ₹315 crores on the SMA book.
    Capital adequacy, including profits for Q1 '26 was at 15.01% and CET 1 ratio of 12.80% including the announced capital raise of INR7,500 crores, CRAR and Tier 1 would be 17.6% and 15.38%, respectively, if computed on June 30 financials. We expect this fund raise to conclude in Q2 and we expect all requisite approvals to come in by then. The LCR for the quarter was stable at 118%. This was marginally higher than the previous quarter. On a prudent basis, we continue to hold the contingency provision of INR315 crores on the SMA book and hence, no utilization was done during the current quarter.

Guidance & targets

Credit-to-Deposit Ratio

  • Credit-to-deposit ratio Credit-to-Deposit Ratio · by year-end/next year · High confidence 80-90%
    Credit deposit ratio has now touched 94-ish-odd percent, which I'm pretty sure will come down to the 80% maybe early 90s by end of this year and certainly going into the 80s by next year.

    — V. Vaidyanathan

Credit Cost

  • Overall credit cost Credit Cost · FY26 · High confidence 2-2.05%
    I thought credit cost we discussed earlier. I mean, discussed meaning I had a side talk with Sudhanshu, like 2% to 2.05%, I think, for this year call it like 2.05%, that's our best guess as we can see today.

    — V. Vaidyanathan

Capital Raise

  • Conclusion of capital raise Capital Raise · Q2 FY26 · High confidence Conclude
    We expect this fund raise to conclude in Q2 and we expect all requisite approvals to come in by then.

    — Sudhanshu Jain

Microfinance Provisions

  • MFI provisions Microfinance Provisions · Q2 FY26 · High confidence Significantly come down
    We expect provisions to significantly come down in Q2 on the MFI front.

    — Sudhanshu Jain

Gross Slippage Ratio (ex-MFI)

  • Gross slippage ratio (excluding microfinance) Gross Slippage Ratio (ex-MFI) · From here on · High confidence Improve
    Gross slippage ratio during the quarter, excluding microfinance stood at 3.54%, which was marginally higher than 3.35% witnessed on an average in last 4 quarters put together. We expect this to improve from here on.

    — Sudhanshu Jain

Net Interest Margin

  • NIM Net Interest Margin · Q4 FY26 · High confidence Restore to Q4 levels (around 5.8%)
    So, we feel that by Q4, margins should broadly restore back to what we posted last quarter and only caveat there is there could be, still some rate cuts, which could sort of kick in.

    — Sudhanshu Jain

Operating Expenses Growth

  • Operating expenses growth Operating Expenses Growth · Near term · High confidence 11-12%
    So operating expenses, we will continue to sort of moderate, and it should stay in the range of about 11% to 12% that kind of growth in the near term as well.

    — Sudhanshu Jain

  • Operating expenses growth Operating Expenses Growth · FY27, FY28 · Medium confidence 12-13%
    Now '27, '28, at least the way we are thinking about building the bank, we think more like 12% or so. So 12%, 13%, probably there.

    — V. Vaidyanathan

Cost-to-Income Ratio

  • Cost-to-income ratio Cost-to-Income Ratio · FY27 · High confidence 65%
    And we have already guided on cost-to-income ratio of 65%, which we are targeting for FY '27, but still hope and belief is that we should try to come in there.

    — Sudhanshu Jain

  • Cost-to-income ratio Cost-to-Income Ratio · Q4 FY26 · High confidence Come down
    But by Q4, definitely, as things improve, this should come down, but it's sort of difficult to pencil out a number as such.

    — Sudhanshu Jain

Microfinance Book Size

  • MFI book size Microfinance Book Size · Bottom out · High confidence ₹7,500 crores

    From ₹8,500 crores today

    In this case, our own thinking is that probably it will bottom out at about INR7,500-odd crores. It's currently about INR8,500 crores.

    — V. Vaidyanathan

Asset Quality

  • NPL stresses Asset Quality · Next 3-6 months · High confidence No 50 bps delta increase
    No, I generally believe your concern is a valid concern because if we give you a 50-bps shock, like tomorrow if we came back to you by end of the year and said, 'Oh my God, it's not going to be 2% or 2.05% and it's going to be 2.55%', right? I'm thankful to you that you gave me a number so that now I know what your benchmark of a material movement is, it will make 50.

    — V. Vaidyanathan

What to watch in Q2 FY26

Capital raise conclusion

Q2 FY26
Current Announced ₹7,500 crores capital raise
Target Conclusion of capital raise

Why it matters

This capital infusion is crucial for strengthening capital adequacy and supporting future growth.

We expect this fund raise to conclude in Q2 and we expect all requisite approvals to come in by then.

Risks & concerns

  • Microfinance business challenges

    medium

    Degrowth of 37% YoY in MFI business due to sector challenges, impacting PAT and requiring higher provisions. Management takes full responsibility and expects provisions to come down in Q2.

    Management acknowledged

  • NIM compression

    medium

    NIM moderated by 24 bps to 5.71% due to repo rate pass-through, MFI book decline, and moderation in investment yields. Expected to restore by Q4 FY26.

    Management acknowledged

  • Increased slippages in Q1

    low

    Gross slippages increased sequentially by 14% to ₹2,486 crores, partly due to seasonality and a ₹108 crore corporate case. Expected to improve from here on.

    Management acknowledged

  • Potential for significant NPL stress (50 bps delta)

    low

    Analyst raised concern about a potential 50 bps increase in NPLs, but management stated they do not foresee such a material movement and expect asset quality to be better in H2 FY26.

    Analyst downplayed

Q&A highlights

6 direct
MFI slippage number for Q1 FY25 Partial
We'll just get back to you on this. But since then, I would say the economic environment has also changed. So that may not be the right comparison.

Analyst sought a specific historical data point for comparison, but management indicated it might not be relevant due to changed economic conditions.

Asked by Zhixuan Gao

Stress in unsecured MSME and credit card delinquency Direct
Credit card, of course, it has been very range bound. Of course, we saw some increase during the quarter, but I would say that it has remained quite stable over a period of time. Even credit costs have been quite range bound. ... On credit card NPA has moved to 1.76% actually.

Analyst probed on specific segments flagged by peers, and management provided specific NPA figures for credit cards and reiterated that credit costs are range-bound.

Asked by Param Subramanian

Overall credit cost for full year FY26 Direct
I thought credit cost we discussed earlier. I mean, discussed meaning I had a side talk with Sudhanshu, like 2% to 2.05%, I think, for this year call it like 2.05%, that's our best guess as we can see today.

Management provided a clear, specific guidance range for the full-year credit cost, which is a key profitability driver.

Asked by Anand Dama

Seasonality in Q1 slippages Direct
It's difficult to quantify that, but that usually, I would say, some bit of seasonality comes in Q1. And then the collection efforts are slightly muted and so on, right at start of the year and so on. Typically, Q4 is a strong quarter in that sense. So it's difficult to quantify seasonality as such, but we of course, expect slippages to sort of come off from here on.

Analyst inquired about the nature of increased slippages, and management attributed some to typical Q1 seasonality, implying an expected improvement.

Asked by Rohan Mandora

Cost-to-income ratio for FY26 Partial
Anand, it's difficult to guide because there are too many moving parts. But by Q4, definitely, as things improve, this should come down, but it's sort of difficult to pencil out a number as such.

Analyst sought a specific full-year cost-to-income ratio, but management indicated complexity while still guiding for a decline by Q4.

Asked by Anand Dama

MFI business growth in FY27 Direct
So the answer is, yes, we want to grow it. So this business, of course, after 8 years, 7 years, it has its own cycles, we agree with that. But with every cycle, every learning, the next part of the cycle stretches out longer because people learn. In this case, our own thinking is that probably it will bottom out at about INR7,500-odd crores. It's currently about INR8,500 crores.

Management confirmed intent to grow the MFI business post-normalization, providing a potential bottom-out figure for the book size.

Asked by Himanshu Taluja

Repo rate pass-through timeline Direct
Generally, say, a repo is changed on a particular month, there is a cycle. So, if a customer's loan will get reset once in 3 months. So, it depends on when his last change happened. So that's how the transmission will happen through the quarter.

Analyst sought clarity on the impact timeline of repo rate cuts on the EBLR book, which directly affects NIM.

Asked by Piran Engineer

Risk of 50 bps increase in NPL stresses Direct
No, I generally believe your concern is a valid concern because if we give you a 50-bps shock, like tomorrow if we came back to you by end of the year and said, 'Oh my God, it's not going to be 2% or 2.05% and it's going to be 2.55%', right? I'm thankful to you that you gave me a number so that now I know what your benchmark of a material movement is, it will make 50.

Analyst probed on potential significant deterioration in asset quality, and management firmly stated they do not foresee such a large increase.

Asked by Harsh Modi

3 min read 6 chapters

Detailed narrative

Strong Deposit Growth and Franchise Building

IDFC First Bank demonstrated robust growth in its deposit franchise, with customer deposits crossing the ₹2.5 lakh crore milestone to reach ₹2.57 lakh crores, marking a 26% YoY increase. Retail deposits also surpassed ₹2 lakh crores. The CASA ratio improved sequentially to 48% at June 2025, and the combined retail term deposits and CASA now constitute 85% of total customer deposits. The bank's cost of funds declined by 9 bps to 6.42%, and cost of deposits marginally decreased by 1 bps to 6.37%, reflecting the strength of its deposit-gathering capabilities and strategic rate management.

Asset Growth and Portfolio Mix

The bank's funded assets grew by a strong 21% YoY to ₹2.53 lakh crores, with a sequential growth of 4.7%. This growth was primarily driven by segments such as mortgage, vehicles, business banking, working capital loans, and the wholesale book. The wholesale book grew at a faster pace of 39% YoY. The bank continues to scale up products like credit cards, with 3.8 million cards issued and spends growing 35% YoY. However, the microfinance business experienced a 37% YoY degrowth, bringing its book size to ₹8,354 crores, representing 3.3% of funded assets.

Asset Quality Trends and Microfinance Impact

Gross NPA for the bank increased marginally from 1.87% in March to 1.97% in June, with Net NPA rising from 0.53% to 0.55%. Excluding the microfinance book, GNPA stood at 1.70%. The MFI SMA pool significantly declined from 5.1% to 2.64% in June, with absolute MFI SMA pool at ₹315 crores, a 59% reduction from its December peak. MFI collection efficiency improved to 99.0% from 98.1% in the previous quarter. Gross slippages increased sequentially to ₹2,486 crores, including a ₹108 crore corporate case, which has been 100% provisioned. The bank maintains a healthy provision coverage ratio of 72.3%.

NIM Moderation and Future Outlook

Net Interest Income (NII) grew 5.1% YoY to ₹4,933 crores, or 11.8% YoY excluding the microfinance business. The Net Interest Margin (NIM) on AUM moderated by 24 bps to 5.71%. This moderation is attributed to the pass-through of repo rate cuts, the decline in the microfinance business, and moderation in investment yields, partially offset by a lower cost of funds. Management expects NIM to restore to Q4 FY25 levels (around 5.8%) by Q4 FY26, as the benefits of reduced deposit rates fully materialize.

Operating Efficiency and Capital Strengthening

Operating expenses growth moderated to 11% YoY and declined 1.4% sequentially, reflecting effective cost management. The bank reported a Profit After Tax of ₹463 crores, a 52% sequential increase, though a 32% YoY decrease primarily due to the microfinance impact and higher provisions. Capital adequacy, including Q1 profits, stood at 15.01% with a CET 1 ratio of 12.80%. The bank expects to conclude a ₹7,500 crore capital raise in Q2 FY26, which will significantly boost its CRAR to 17.6% and Tier 1 ratio to 15.38%, providing a strong foundation for future growth.

Strategic Vision and Long-Term Goals

Management emphasized a long-term vision focused on building a universal bank with strong fundamentals. They highlighted the journey of the retail book from ₹0 in 2010 to ₹2 lakh crores by June 2025. The bank aims to bring its credit-to-deposit ratio down to 80-90% by year-end or next year. They reiterated a credit cost guidance of 2-2.05% for FY26 and a target cost-to-income ratio of 65% by FY27, indicating a commitment to sustainable and profitable growth through disciplined execution and strong governance.

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