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Informist, Saturday, Jan. 25, 2025

 

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--IDFC FIRST Bk MD Vaidyanathan: Microfinance issue not an IDFC issue alone
--CONTEXT: Remarks by IDFC FIRST Bank mgmt in post-earnings analyst call
--IDFC FIRST Bk MD: See operational spend growing 13% FY26 vs 18.2% Apr-Dec
--IDFC FIRST Bank MD Vaidyanathan: See loan growth of 18-20?ter FY26
--IDFC FIRST Bank: FY26 income growth seen 14% due to reducing microfin book
--IDFC FIRST Bk: Closely watching recent events in Karnataka on microfinance
--IDFC FIRST Bk: See microfinance credit cost peaking Jan-Mar, then reducing
--IDFC FIRST Bk:Microfinance book gross NPA 4.45% on Dec 31 vs 2.52% qtr ago
--IDFC FIRST Bk: Oct-Dec microfinance disbursals INR 9.53 bln, down 75% YoY
--IDFC FIRST Bk: Microfin collection efficiency 94.1% Oct vs 98.6% Jul-Sept
--IDFC FIRST Bk: Microfin collection efficiency rose to 98.0% Nov, 98.6?c
--IDFC FIRST Bk:Intend to grow branches 10% per yr vs 25% growth in deposits
 

 

NEW DELHI – IDFC FIRST Bank has warned that the pain from its microfinance book is going to worsen in Jan-Mar before the issue becomes better. Addressing analysts and investors in a post-earnings conference call on Saturday, the bank's management also said that income growth in 2025-26 (Apr-Mar) will moderate to 14-15% due to the lender's conscious decision to trim down the high-yield microfinance book.

 

Defending the hit the bank has been taking from the deterioration in microfinance loans, V. Vaidyanathan, the bank's managing director and chief executive officer, said IDFC FIRST Bank was not the only lender facing issues on the microfinance front. The private lender's net profit for Oct-Dec halved from a year ago to INR 3.39 billion as provisions doubled to INR 13.38 billion.

 

IDFC FIRST Bank's microfinance collection efficiency fell further in Oct-Dec, with the quarterly average declining to 96.9% from 98.6% in Jul-Sept, although the monthly numbers improved over the course of the quarter from 94.1% in October to 98.0% in November and 98.6% in December. As such, the gross bad loan ratio for the microfinance book jumped to 4.45% as on Dec. 31 from 2.52% at the end of December.

 

As part of its effort to contain the pain, IDFC FIRST Bank has been reducing the size of its microfinance loan book, with Oct-Dec only seeing disbursals to the tune of INR 9.53 billion, down 75% from last year, with outstanding loans at INR 109.97 billion as on Dec. 31, down 19.3% on year.

 

In Apr-Dec, the credit cost of the bank's microfinance business was 8% excluding the contingency buffer of INR 3.15 billion made in Jul-Sept. The bank's management also said they are "closely watching" developments in the sector in Karnataka.

 

Earlier on Saturday, Karnataka Chief Minister Siddaramaiah said the state will use the ordinance route to bring in a law that protects borrowers from microfinance lenders from high rates of interest and coercive recovery tactics. "There are many unregistered companies. That's where the problem is. And that's why we're bringing a new law to regulate unregistered financial institutions... We're banning the outsourcing of loan recovery functions. That's also why we're bringing in a law," Siddaramaiah was quoted as having said by newspaper Deccan Herald.

 

While Vaidyanathan warned that income growth will be lower in FY26 at 14-15% as the high-yield microfinance business "is gone and it has to reset itself", the good news was that operational expenditure would also rise at a slower pace of around 13% compared to 18.2% in Apr-Dec, with the bank only intending to increase the number of branches by 10% annually. The bank expects its overall loan book to grow 18-20% and deposits by 24-25% going ahead.

 

On Friday, shares of IDFC FIRST Bank closed 1.3% lower at INR 62.27 on the National Stock Exchange.  End

 

Reported by Siddharth Upasani

Edited by Ashish Shirke

 

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