IDFC First Bank Limited — Q2 FY26 earnings call

Call held 23 Oct 2025

Management summary

IDFC First Bank reported strong H1 FY26 net profit growth of 76% driven by core income and reduced provisioning, despite a sequential dip in Q2 PAT due to lower trading gains. The bank demonstrated robust deposit and loan growth, alongside significant improvements in asset quality metrics. Management emphasized building capabilities, strengthening the deposit franchise, and expects NIM and cost-to-income ratio to improve in coming quarters.

Highlights

  • Customer deposits grew by 23.4% YoY to INR 2.69 lakh crores, with average customer deposits up 24% YoY.

  • Gross NPA improved by 11 basis points to 1.86%, and Net NPA improved to 0.52%.

  • Net profit grew by 76% on a Y-o-Y basis for H1 FY26, reaching INR 815 crores.

  • The total credit cards issued by the bank have crossed 4 million, and the book has touched INR 8,600 crores.

  • Borrowing as a composition of total deposits and borrowings reduced significantly to 8% from 48% at the time of merger.

Concerns

  • The microfinance portfolio degrew to INR 7,300 crores from INR 8,300 crores in the previous quarter.

  • Net interest margin (NIM) on AUM reduced by 12 bps sequentially to 5.59% from 5.71%.

  • Profit after tax degrew QoQ by 23.8% due to much higher trading gains in Q1 FY26 (INR 495 crores) compared to Q2 FY26 (INR 56 crores).

Key financials

  1. Profit After Tax ₹352 Cr -23.8%QoQ
  2. Loans and Advances ₹2.67L Cr +19.7%YoY
  3. Customer Deposits ₹2.69L Cr +23.4%YoY
  4. NIM on AUM 5.6% -0.21%QoQ
  5. Gross NPA 1.9% -0.56%QoQ
  6. CASA Ratio (Period End) 50.1%

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.

Capital allocation

high confidence
  • Liquidity Liquidity disclosed Capital Adequacy Ratio (CAR) including H1 FY26 profits was 14.34% with CET1 ratio at 12.27%. Post conversion of CCPS, CAR would be 16.82% and Tier 1 14.75%. Average LCR deposits were 115% for the quarter.
    The capital adequacy ratio, including profits for H1 FY 26 was at 14.34% with CET1 ratio at 12.27%. If I take into account the conversion of CCPS, which will happen into equity pretty soon, the CRAR and the Tier 1 would be 16.82% and 14.75%, respectively, if computed on the financials as of September 30, 2025. Average LCR deposits were at 115% for the quarter and broadly around our guided range.

Guidance & targets

Margin

  • NIM on AUM Margin · by end of Q4 FY26 · High confidence upwards of 5.8%
    And my sense is by the end of Q4, the margin should be definitely upwards of 5.8%.

    — Sudhanshu Jain

Credit Cost

  • Credit Cost Percentage Credit Cost · FY26 · High confidence around 2.05%, 2.1%
    And our overall guidance on credit cost still stays around that 2.05%, 2.1%, which we had guided in the previous quarter.

    — Sudhanshu Jain

  • Credit Cost Percentage (H2 FY26) Credit Cost · H2 FY26 · High confidence much lower
    So definitely, because we are anticipating a lower stress going forward, the credit cost in H2 will be much lower to that number of 2.05% to 2.1%.

    — Sudhanshu Jain

Portfolio Growth

  • Microfinance Portfolio Portfolio Growth · by end of FY26, then FY27 onwards · High confidence stabilize by end of this year, start growing from next year
    Our own guess is that by end of this year, it should stabilize, like it should taper off on the low bottom side by end of this year and then grow from there. We want to grow it, just to be clear, we want to grow it because it has many benefits like we talked about.

    — V. Vaidyanathan

Credit Quality

  • Credit Deposit Ratio Credit Quality · ongoing · Medium confidence mid-80s

    Previously 94% → mid-80s

    And one of the items of building it right is bringing credit deposit ratio to mid-80s.

    — V. Vaidyanathan

Efficiency

  • Cost-to-Income Ratio Efficiency · in the next 2 years · High confidence 75%

    Previously 95-96% → 75%

    it will come down to 75%, we believe, in the next 2 years.

    — V. Vaidyanathan

Operating Expenses

  • Operating Expenses Growth Operating Expenses · ongoing · Medium confidence less than 30%
    And if we can maintain our opex less than 30%, which is what we are guiding for, which is what we're trying for.

    — V. Vaidyanathan

What to watch in Q3 FY26

NIM on AUM Trajectory

By Q4 FY26
Current 5.59%
Target Upwards of 5.8%

Why it matters

NIM is a key profitability driver, and management has provided a specific target for improvement.

And my sense is by the end of Q4, the margin should be definitely upwards of 5.8%.

Risks & concerns

  • NIM Compression

    medium

    NIM on AUM reduced by 12 bps sequentially due to repo changes and asset mix, but management expects improvement in coming quarters.

    Management acknowledged

  • High Credit Deposit Ratio

    medium

    The current credit deposit ratio is 94%, which management aims to bring down to the mid-80s by prioritizing deposit growth.

    Management acknowledged

  • ECL Implementation Impact

    medium

    New ECL norms may lead to provisioning increases for Stage 1 and 2 assets, though the overall capital impact is expected to be marginally positive.

    Management acknowledged

  • Microfinance Portfolio Stress

    low

    The microfinance issue has been a significant drag but management believes it is now behind them, having utilized INR 75 crores of provision buffer.

    Management acknowledged

  • Global Economic Headwinds (e.g., Trump tariffs)

    low

    Management acknowledges external factors like Trump tariffs as watch items but internal analysis suggests stability for their portfolio.

    Management acknowledged

Q&A highlights

5 direct
Margins trajectory for Q3 and Q4 FY26 Direct
And my sense is by the end of Q4, the margin should be definitely upwards of 5.8%.

Analyst sought specific forward guidance on NIM, which management provided with a clear target for Q4.

Asked by Akshay Jain

Strategy regarding SA rate cuts given high CASA ratio Direct
So we don't want to jump it on too fast. We want to raise the deposits. I know if we did it, if we cut the SA rates, we'll get some straightaway benefit to the P&L and everybody will be happy. But I can give you happiness a little later also when we do it.

Analyst questioned why the bank isn't leveraging its high CASA with rate cuts; management explained a strategic, long-term approach to first reduce the credit deposit ratio.

Asked by Akshay Jain

Impact of ECL implementation on provisioning and capital Partial
But in my view, on quick assessment is that there would be a provisioning increase, which will happen for Stage 1 and Stage 2 assets vis-a-vis the current standard asset provisioning norms... But this could get partly offset by the lower provisioning requirement on Stage 3 assets... I think we will be broadly neutral on the capital front on transition.

Analyst probed a significant upcoming regulatory change; management provided a preliminary assessment of potential provisioning increases but overall capital neutrality.

Asked by Akshay Jain

Update on ROA and credit cost guidance for Q4 FY26 Partial
I'm not sure we can exactly pin 0.9% or 0.1%. We got to see as it comes because there are so many moving parts. But directionally, we can say that the credit cost should come down, margins should go up.

Analyst sought confirmation on previous ROA guidance; management provided directional commentary on credit cost and margins but refrained from specific ROA numbers due to market dynamics.

Asked by Param Subramanian

Drivers behind the 12% QoQ growth in vehicle loans Direct
So of course, on 2-wheelers, as you would have seen in the past also, we have been gaining market share there. We have been expanding in that business... During the last, I would say, last part of the quarter, we also saw some pent-up demand typically in the last 10 days because of the GST announcements which came in, and that has given us this lift.

Analyst inquired about a specific strong growth segment; management attributed it to market share gains, business expansion, and a temporary boost from GST announcements.

Asked by Gao Zhixuan

Outlook for the microfinance book given degrowth despite higher disbursements Direct
Our own guess is that by end of this year, it should stabilize, like it should taper off on the low bottom side by end of this year and then grow from there. We want to grow it, just to be clear, we want to grow it because it has many benefits like we talked about.

Analyst questioned the persistent degrowth in a previously stressed segment; management provided a clear timeline for stabilization and future growth expectations.

Asked by Jai Mundhra

Exposure of MSME book to global risks like US exports/Trump tariffs Partial
We have about 5 or 6 clients to whom we have, who do export to the US and are affected. But we saw the list. They are like rated well. We talk to those clients, and they are like they're like fine... We feel things are comfortable as of now.

Analyst probed potential external risks to a key segment; management provided an assessment of limited direct impact on larger clients but acknowledged ongoing monitoring.

Asked by Jai Mundhra

Reasons for the stickiness of the cost-to-income ratio and levers for improvement Direct
Basically, once the microfinance book stops degrowing because the more microfinance degrows, that amount of income goes away because let's break this up. When you say cost to income, it is cost divided by income. So people often think of cost income as cost. No, its cost by income.

Analyst highlighted a key efficiency metric; management clarified the cause (income reduction from MFI) and outlined factors for future improvement, including operating leverage and MFI stabilization.

Asked by Shailesh Kanani

2 min read 6 chapters

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.

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