Detailed Narrative
Q2 FY26 Performance Overview
IDFC First Bank reported a Q2 FY26 profit after tax of INR 352 crores, contributing to an H1 FY26 net profit of INR 815 crores, marking a 76% YoY increase. Loans and advances grew by 19.7% YoY to INR 2.67 lakh crores, while customer deposits increased by 23.4% YoY to INR 2.69 lakh crores. However, net interest margin (NIM) on AUM saw a sequential reduction of 12 bps to 5.59%, and Q2 PAT was lower QoQ by 23.8% due to significantly lower trading gains compared to Q1 FY26.
Asset Quality Improvements
The bank demonstrated sequential improvement in asset quality, with Gross NPA improving by 11 bps to 1.86% and Net NPA improving to 0.52%. The Retail, Rural, and MSME segments also saw Gross NPA improve by 9 bps to 1.73% and Net NPA to 0.63%. Gross slippages reduced by 9% QoQ, and net slippages improved by 13% sequentially, primarily driven by the microfinance segment. The Provision Coverage Ratio (PCR) remained healthy at 72.2%.
Deposit Franchise and Funding Strategy
The deposit franchise continued to strengthen, with CASA deposits growing by 26.8% YoY on an end-of-period basis, reaching a period-end CASA ratio of 50.1%. The average CASA ratio for the quarter was 48.6%, up from 46.3% last year. The bank's strategy involves prioritizing deposit growth to reduce its credit deposit ratio from the current 94% to the mid-80s, and has reduced borrowings as a percentage of total deposits and borrowings to 8% from 48% at the time of merger.
Strategic Focus Areas and Capabilities
Management highlighted a focus on building capabilities, digitization, and product innovation. The bank is developing the ability to disburse 1 million loans per month, including 6 lakh consumer durables, 1.2-1.3 lakh two-wheelers, and 1.5 lakh credit cards. The credit card book has already crossed 4 million cards and reached INR 8,600 crores. The wealth management AUM grew by 28% to INR 55,000 crores, with a long-term aspiration of INR 2-3 lakh crores.
Profitability and Cost Efficiency
Core operating profit (excluding trading gains) improved by 4.6% sequentially, and NII grew by 6.8% YoY. The cost of funds improved by 19 bps sequentially, and cost of deposits by 16 bps. Management expects the cost-to-income ratio, currently at 59.1%, to come down to 75% in the next two years, driven by operating leverage as the microfinance book stabilizes and income grows.
Capital Position and Regulatory Outlook
The bank's Capital Adequacy Ratio (CAR) stood at 14.34% (including H1 FY26 profits), with a CET1 ratio of 12.27%. Post conversion of CCPS, CAR would be 16.82% and Tier 1 14.75%. Management anticipates the impact of new regulations like ECL and revised operational risk capital charges to be broadly neutral on capital upon transition, expected from April 1, FY27.