Retail Banking Boom! IDFC First Bank’s Q3 FY25 Results Highlight a 28.8% YoY Growth in Deposits

 IDFC First Bank Q3 FY25 Results: A Closer Look at Financials, Strategy, and Position in the Market

IDFC First Bank’s Q3 FY25 results reflect a robust growth trajectory with a strong focus on retail banking, a well-diversified loan portfolio, and continued investments in technology. Here, we analyze the bank’s financials, strategic priorities, and market position.

Financial Performance Highlights

Growth Metrics

• Customer Deposits: Grew by 28.8% year-over-year (YoY), reaching ₹2,27,316 crore. Retail deposits increased by 29.6%, solidifying the bank’s deposit base.
• Loan Book: Expanded by 22% YoY to ₹2,31,074 crore, driven by retail, rural, and MSME loans.
• Net Interest Income (NII): Increased by 14% YoY to ₹4,902 crore, demonstrating strong core operations.

Profitability

• Net Profit: Declined 53% YoY to ₹339 crore due to higher provisions for the microfinance portfolio. Sequentially, it grew by 69% from Q2 FY25.
• Net Interest Margin (NIM): Recorded at 6.04% in Q3 FY25, down from 6.18% in Q2 FY25, primarily due to changes in portfolio composition.
• Operating Expenses: Rose by 16% YoY, reflecting continued investments in growth and technology.

Asset Quality

• Gross NPA: 1.94%; Net NPA: 0.52%.
• Excluding microfinance, GNPA and NNPA stood at 1.81% and 0.49%, respectively, indicating better performance in core segments.

Capital Adequacy

• Capital Adequacy Ratio: 16.11%; CET-1 Ratio: 13.68%, showcasing a strong capital position.

Strategic Focus Areas

Retail Banking Dominance

• Retail deposits now form 80% of total deposits, ensuring a stable and granular liabilities base.
• CASA ratio stood at an impressive 47.7%, underlining the bank’s ability to raise low-cost funds.

Diversified Loan Book

• Retail loans now dominate the portfolio, with infrastructure loans reduced to just 1.1% of total funded assets from 22% at the time of the merger.
• The bank’s focus on mortgages, vehicle loans, and MSME financing reflects its alignment with India’s growing consumption economy.

Digital Transformation and Wealth Management

• The mobile banking app is ranked among the top 15 globally, with over 18 million users and a rating of 4.8 on major app stores.
• Wealth management AUM crossed ₹42,000 crore, growing at 89% CAGR.

Position Among Peers

Strengths

• High NIM of 6.04% and strong CASA growth.
• Better-than-industry delinquency ratios for key products like home loans and vehicle loans, highlighting superior risk management.

Challenges

• Profitability is impacted by provisions for the microfinance portfolio and higher cost-to-income ratios in the nascent stages of liabilities and credit card businesses.
• The cost-to-income ratio is targeted to be reduced over the next three years, improving operational efficiency.

What Investors Should Watch For

1. Growth Prospects: Continued expansion in retail deposits and loan books offers long-term stability.
2. Risk Management: Monitoring slippages in the microfinance portfolio will be critical.
3. Profitability Path: Scaling liabilities and credit card businesses to achieve break-even will be a key focus area.

Conclusion

IDFC First Bank’s Q3 FY25 performance underscores its commitment to becoming a universal bank with a strong retail focus. While short-term profitability is impacted by higher provisions, the long-term growth story remains intact, driven by a diversified loan book, strong digital capabilities, and robust risk management.