IDFC First Bank (IDFCFB) has reported a strong performance in Q1FY24, with a profit after tax (PAT) of Rs 7.7 billion, surpassing expectations by 6%. This represents a significant y-o-y growth of 61%, which can be attributed to robust fee income and lower provisions. Net interest income (NII) also showed substantial growth, increasing by 36% y-o-y, although margins slightly moderated by 8 basis points q-o-q, settling at 6.33%.
The bank’s business growth remained solid, driven by healthy expansion in the commercial finance and retail loan segments. However, the wholesale book saw no y-o-y growth. On the deposit front, there was a healthy increase of 36% y-o-y, although CASA deposits remained flat q-o-q, leading to a moderation in the CASA ratio to 46.5% during 1QFY24.
Based on these positive developments, it is estimated that IDFCFB will achieve a 32% earnings compound annual growth rate (CAGR) over the period of FY23 to FY25, with return on assets (RoA) and return on equity (RoE) of 1.3% and 13.2%, respectively.
Other income also saw impressive growth, rising by 65% y-o-y, largely due to a 50% y-o-y increase in core fee income, despite a decline in treasury income. Operating expenses increased by 37% y-o-y, leading to a higher C/I ratio of 71%. The bank expects operating leverage to improve over the medium term. Pre-Provision Operating Profit (PPoP) experienced substantial growth, rising by 59% y-o-y to Rs 15 billion, with core PPoP standing at Rs 14.3 billion in 1QFY24. On the business front, funded assets grew significantly by 25% y-o-y and 7% q-o-q.
Rural and Consumer finance led the growth, with impressive y-o-y growth rates of 46% and 27%, respectively. The Business Finance book also contributed to growth with a 24% y-o-y increase. Within the retail segment, the highest growth was observed in housing (31% y-o-y), vehicle finance (45% y-o-y), and cards (68% y-o-y). As of 1QFY24, Consumer and Rural finance constituted 69% of the bank’s portfolio. Deposits grew by 36% y-o-y, with CASA deposits remaining flat q-o-q and TD growing by 18% q-o-q, amounting to `767 billion. Asset quality continued to improve, with GNPA/NNPA ratios declining by 34bp/16bp q-o-q to 2.17%/0.7%. The provision coverage ratio also improved to around 68%.
IDFCFB delivered a steady quarter with healthy growth across key parameters. Strong fee income and lower provisions boosted earnings, which were prudently utilised to increase coverage. The bank expects new businesses such as Commercial Banking, Credit Cards, and Home Loans to drive loan growth and earnings. IDFCB has invested well in digital capabilities, branch, and product expansion, and has presence across retail products. Cost ratios are elevated but will moderate as scale benefits come into effect, while the retirement of legacy high-cost borrowings will aid NII growth.