IDFC First Bank

IDFC First Bank demonstrated strong growth in its core business segments. Total customer deposits expanded by 23.4% year-on-year to reach ₹2.69 lakh crores, with average customer deposits also growing by 24% YoY. Retail deposits, a key focus area, increased by 21.4% YoY on an end-of-period basis. The bank's CASA deposits showed significant momentum, growing 26.8% YoY, resulting in an average CASA ratio of 48.6% for the quarter. Loans and advances kept pace, growing 19.7% YoY to ₹2.67 lakh crores, supported by healthy growth in Mortgage, Vehicle, and a recovery in Consumer loans.

The bank reported a notable sequential improvement in asset quality. Gross Non-Performing Assets (NPA) decreased by 11 basis points to 1.86% from 1.97% in the previous quarter, while Net NPA improved by 3 basis points to 0.52% from 0.55%. The Retail, Rural, and MSME segments also contributed to this improvement, with their gross NPA reducing by 9 bps to 1.73% and net NPA by 3 bps to 0.63%. Gross slippages declined by 9% QoQ, and net slippages improved by 13% sequentially, primarily driven by better performance in the microfinance portfolio.

Profit After Tax (PAT) for Q2 FY26 stood at ₹352 crores, contributing to a half-year PAT of ₹815 crores, marking a 76% YoY growth for the quarter. Net Interest Income (NII) grew by 6.8% YoY. However, the Net Interest Margin (NIM) experienced a sequential compression of 12 basis points, settling at 5.59% from 5.71% in Q1 FY26, attributed to the impact of repo changes and shifts in asset mix. Management expressed confidence that NIM has bottomed out and expects it to improve to 'upwards of 5.8%' by Q4 FY26.

The microfinance portfolio saw a slight degrowth, reducing to ₹7,300 crores in Q2 from ₹8,300 crores in the previous quarter, now representing 2.7% of total funded assets. Despite this, insurance coverage on the outstanding microfinance portfolio improved to 77%. In contrast, the credit card business continued its strong trajectory, with the total number of credit cards issued crossing the 4 million mark during the quarter, and the credit card book reaching ₹8,600 crores.

The bank's Capital Adequacy Ratio (CAR), including profits for H1 FY26, was 14.34%, with a CET1 ratio of 12.27%. Pro-forma CAR, factoring in the conversion of CCPS, would be 16.82%, and Tier 1 at 14.75%. Management highlighted the strategic focus on improving the credit deposit ratio, currently at 94%, with a long-term goal to bring it down to the mid-80s. This initiative aims to strengthen the deposit franchise and reduce reliance on external borrowings.

Management emphasized the ongoing play of operating leverage, noting that H1 FY26 operating expenses increased by 11.8% while total customer business grew by 21.6%. Although the cost-to-income ratio was impacted by the degrowth in the microfinance book, the bank anticipates a decline in this ratio in the coming quarters. The long-term target is to reduce the cost-to-income ratio from the current 95-96% to 75% within the next two years, driven by income growth and continued digitization efforts.

The bank is committed to building robust capabilities, enhancing digitization, and improving customer experience. This includes developing the capacity to disburse 1 million loans per month and growing its wealth management AUM to ₹2-3 lakh crores from the current ₹55,000 crores. Management reiterated its dedication to building a 'universal bank' with strong credit quality, emphasizing long-term structural improvements and a cautious approach to growth.