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Informist, Tuesday, Jan. 21, 2025

NEW DELHI – IDFC FIRST Bank's net profit for the quarter ended December is expected to be nearly a third lower from a year ago as issues with the microfinance book continue to plague the lender. According to brokerages, while the private bank's business grew in a healthy manner in Oct-Dec, the asset quality is likely to have deteriorated further.

As per the average of the estimates of six brokerages, IDFC FIRST Bank may report a net profit of INR 4.90 billion for Oct-Dec, down 31.5% on year. However, the estimates for the quarterly profit number were in a rather wide range of INR 3.25 billion to INR 6.08 billion. The bank will announce its results on Saturday.

In Jul-Sept, IDFC FIRST Bank's net profit had crashed 73% after provisions more than tripled on account of deteriorating asset quality in its microfinance book and the creation of a prudent provisioning buffer of INR 2.53 billion for a legacy account related to a Mumbai toll road after the Maharashtra government in early October exempted light motor vehicles from paying toll at five entry points into the city. V. Vaidyanathan, managing director and chief executive officer, had said the bank would recognise the buffer back as profits depending on toll collections and the government's compensation to the client.

Given the prudent buffer made in Jul-Sept, YES Securities (India) Ltd expects IDFC FIRST Bank's provisions in Oct-Dec to be lower sequentially. Meanwhile, Axis Securities Ltd sees the lender's provisions doubling year-on-year to INR 13.20 billion in the third quarter of 2024-25 (Apr-Mar). Total provisions in Jul-Sept stood at INR 17.32 billion.

Analysts also continued to warn about IDFC FIRST Bank's microfinance book, for which it had made a prudent provisioning buffer of INR 3.15 billion in Jul-Sept after massive floods in Tamil Nadu brought down collection efficiency to 98.6%. The bank has been working to reduce the microfinance portfolio's share in its overall loan book, which stood at 5.6% as at the end of September compared to 6.3% as on Jun. 30. Thanks to the provisions already made for the microfinance book, Nuvama Wealth Management Ltd expects IDFC FIRST Bank to be the "only private bank in our coverage that would see a sharp quarter-on-quarter dip in credit cost" in Oct-Dec.

In Jul-Sept, IDFC FIRST Bank's credit cost was around 1.8% after excluding the microfinance business and the Mumbai road toll account for which it made the prudent provisioning buffer.

Aside from asset quality, the bank's business grew robustly in the quarter ended December, with loans and advances up 21.9% as on Dec. 31 at INR 2.31 trillion, while customer deposits stood at INR 2.27 trillion, 28.8% higher from a year ago. However, the current account savings account ratio declined to 47.8% from 48.9% as at the end of September, the bank said in an exchange filing on Jan. 3.

According to YES Securities, growth in the bank's net interest income "will be slightly slower than average loan growth due to rise in cost of deposits outpacing yield on advances". As a result, the net interest margin will be "slightly lower" in Oct-Dec compared to Jul-Sept. YES Securities has an 'add' rating on IDFC FIRST Bank, with a target price of INR 74. Shares of the bank were at INR 63.30 on the National Stock Exchange at 1430 IST, down 0.8% from Monday's close. 

IDFC FIRST Bank's net interest margin in Jul-Sept was 6.18%. While Nuvama Wealth Management sees the number edging down to 6.08% in Oct-Dec, other brokerages see the margin being broadly steady.

According to the average of the six brokerages' estimates, IDFC FIRST Bank's net interest income in Oct-Dec is seen 16.2% higher on year at INR 49.80 billion.

Following are the Oct-Dec earnings estimates for IDFC FIRST Bank based on reports from six brokerage firms in descending order of the estimate of net profit:

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Siddharth Upasani

Edited by Avishek Dutta

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