IDFC First Bank’s net interest margin (NIM), which saw compression over the past two quarters, is expected to improve, said V Vaidyanathan, managing director (MD) and chief executive officer (CEO).
As the bank passed on the full impact of the cut in repo rate, the interest margins are expected to rise from Q3 (October-December) onwards.
“We feel this is likely the low point for NIMs. We see sequential improvement in Q3 and further uptick in Q4,” he said. He noted that future rate cuts, if any, could make the bank re-evaluate things.
The private lender’s interest margins in Q2 were at 5.59 per cent, down 59 basis points (bps) on a yearly basis and 12 bps quarter-on-quarter (Q-o-Q).
In Q1FY26, the NIM was at 5.71per cent and 5.87 per cent in Q4FY25.
On the sequential decline in profits, Vaidyanathan added that the drop was largely due to the absence of treasury gains amounting to ₹470 crore booked in Q1.
Apart from these, core profitability actually improved Q-o-Q and year-on-year (Y-o-Y).
“Provisions have been reduced. Loan growth remains strong, asset quality is stable, and the cost of funds continues to fall, leading to rise in net profits,” he said.
Cost of funds for the bank fell due to a rise in current account savings account (CASA) ratio to 50.1 per cent.
On a Q-o-Q basis, cost of funds was reduced by 19 bps. Cost of deposits was at 6.22 per cent for Q2FY26 compared to 6.37 per cent in Q1FY26.
At the time of the merger of IDFC Bank and Capital First, the bank used to pay around 280 bps over scheduled commercial banks (SCBs).
Over time, the bank reduced its cost of funds and now pays only 60 bps over the average of SCBs.
He added that the bank is expanding into cash management, start-up banking, wealth management, non-resident Indian (NRI) services, and trade finance.
In NRI banking, the bank now serves over 100,000 customers with ₹20,000 crore in deposits. It has introduced features like UPI for international mobile numbers in Australia, the US, Canada, UK, France and many West Asian countries. It has full digital onboarding through GIFT City.
“We are in no hurry. The focus is on building on fundamentals. The focus is on bringing down the credit-deposit ratio to mid-80s and we want to fund the bank from deposits and reduce reliance on borrowings,” Vaidyanathan said in an interaction with Business Standard. He plans to keep the CASA ratio above 45 per cent.
Currently, the credit-deposit (CD) ratio stands at 94.2 per cent. The bank is not planning to raise capital, whether debt or equity.
IDFC First Bank is now positioning itself as a universal bank with a wide portfolio beyond just micro, small and medium enterprises (MSMEs) and retail loans.
Its wholesale book now accounts for 20 per cent of the loan mix, while mortgages, vehicle finance, rural and other retail segments round out a balanced portfolio, said Vaidyanathan.
“None of our 25 business lines contributes more than 11–12 per cent, giving us stability,” he added.
The bank has transformed the loan book from a primarily wholesale credit book to a well diversified portfolio of retail, rural, MSME and corporate banking.
As on September 30, the loan book was at ₹2.7 trillion.
The bank sees a strong second half (H2FY25) as goods and services (GST) cuts, tax benefits, and falling interest rates push up consumption.
Early indicators — rising electricity use, two-wheeler and cement sales — suggest rural demand recovery, he said.
Further, the Reserve Bank of India’s (RBI’s) recent draft guidelines on expected credit loss (ECL), Basel III, and large exposure norms are expected to be “progressive and positive” and in alignment with global standards.
The impact on the bank’s provisioning under ECL norms is still being assessed but is expected to be manageable, he said.
