IDFC First Bank Ltd (IDFCFIRSTB) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day, and welcome to the IDFC FIRST Bank's Q2 FY '27 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star, then zero, on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over
Moderator: to Mr. Saptarshi Bapari, Head Investor Relations and ESG. Thank you and over to you, Mr. Bapari.
Saptarshi Bapari (IDFC First Bank Ltd): Thanks Darwin. Thanks everyone for joining the call. We'll have a presentation first from Sudhanshu, who is our CFO, and then we'll have some brief comments from Vaidya. And then we can open the house for the Q&A. So, I'll now hand over to Sudhanshu for his opening remarks.
Sudhanshu Jain (IDFC First Bank Ltd): Yeah. Thank you, Saptarshi. First of all, good evening everyone. It's a pleasure speaking to all of you. I will In terms of sequencing, I'll maybe first cover few business numbers and then later on take on the profitability part. So, business momentum continues to be quite strong. During the quarter, we saw a healthy growth in both advances and deposits. However, the key development during the quarter was the FCNRB mobilization under the RBI scheme. So, let me start with giving some numbers first on that front. During the quarter, the bank mobilized rupees 34,390 crores, which is about USD 3.6 billion of FCNRB deposit under this scheme. This constituted about 10% of the overall deposit that we have at September 30th, 2026. Against this, we also extended leverage of USD 2.6 billion, which is in Indian rupees about 25,000 crores to NRI customers. If we see on these on on the basis of these loans, then this constituted about 7% of the overall loan book at September 30th, 2026. At mobilization of three point USD 3.6 billion, the bank garnered about 2.7% of the overall mobilization the country received under this scheme. This is about 1% higher than our NRI deposit share, which was just pre FCNRB announcement. As part of the exercise, we also obtained our debut international rating from S&P and CARE Edge. Happy to report that we we got an investment grade ratings for the bank on this front. On the back of the ratings, we were also did a debut bond issuance. We almost raised close to $1 billion of bonds. The actual number was USD 950 million and these were raised from the offshore IBU branch from marquee international investors. Since this was a specific opportunity during the current quarter, wherever relevant, I will try to give out numbers with and without FCNRB to keep underlying trends comparable with the previous quarters. Moving on to loans, that registered a strong growth of 30.1% on a YoY basis and 13.6% on a QoQ basis, including FCNRB, and that book has now reached about rupees 3.47 lakh crores. If we exclude the FCNRB backed loans, the loan assets on a gross of IBPC basis grew by 22.2% on a YoY basis and 5.7% on a QoQ basis, and was about rupees 3.29 lakh crores. The incremental growth on the loan side during the quarter was primarily driven by mortgage, vehicle loans, consumer loans and a slightly faster growth in business banking and wholesale loans, which individually grew by more than 30% on a YoY basis. The MFI book saw marginal increase during the quarter. That book now stands at rupees 6,825 crores, and about 2% of the overall funded assets. 97% of the book is now covered under the CGFMU scheme. With respect to credit cards, happy to report that the cards in in force crossed 5 million during the quarter. The book on an outstanding basis stood at rupees 9,875 crores and the credit card spend grew at a healthy pace of about 15% on a YoY basis. We have given more details around the asset growth on slide number 31 in the investor presentation. Moving on to asset quality, there also we saw an improving trajectory across GNPA, Net NPA, SMA, across product classes. We give a fair degree of disclosures in the investor presentation around these numbers. On a headline basis, the gross NPA of the ratio of the bank improved by about 19 basis points from 1.51% reported in Q1 to 1.32% in Q2, and by 9 bps if we exclude FCNRB leverage from the denominator. Similarly on net NPA, we saw an improvement of 4 basis points to 0.40%. If we exclude the FCNRB backed loans, the net NPA ratio would be 0.43% as against 0.44% reported in the previous quarter. Further drill down
Sudhanshu Jain (IDFC First Bank Ltd): look for now the retail, agri and the MSME book, the GNPA ratio here improved from 1.4% to 1.24% and to 1.36% if we exclude again FCNRB backed loans from the equation. Moving on, the collection efficiency for the current bucket for retail continues to hold well. It has been now stable around the 99.5% for many quarters. The SMA 1 and the SMA 2 book for the retail was at 0.72% in Q2 from 0.77% which we saw in the previous quarter. SMA 1 and 2 for microfinance further normalized to 0.6% from 0.7 bps in the previous quarter. At an overall bank level, SMA 1 and 2 reduced by four basis points to 0.58%. The net slippage ratio for the quarter was stable at about 1.6%. Moving on to deposits, total deposits which is customer deposits plus certificate of deposits that reached at ₹3.48 lakh crores. The growth was about 25.9% on a y-o-y basis and 11.8% on a q-o-q basis. If I just talk of customer deposits, that has crossed ₹3.4 lakh crores. It grew by 26.9% on a y-o-y basis and 14% on a q-o-q basis. This also included FCNR and if we exclude FCNR deposits, customer deposits grew by 14.1% on a y-o-y basis. But here is where we slightly calibrated the growth because we got strong FCNR inflows during the current quarter. This was more a conscious strategy which we followed during the course of the quarter. As a result, we did reduce the bulk deposit ratio from 17.1% to 13.9% in the current quarter and also repaid certain certificate of deposits as it came up for maturity. If I talk of CASA deposits, that grew to now ₹1.66 lakh crores. The growth on a y-o-y basis was 19.8%. While the CASA ratio for the quarter came down, came to 47.6%, this was lower because of the FCNR deposit mobilisation in the denominator. The average CASA ratio still, I would say, was healthy at about 48.4%. If I move on to profitability, happy to report that the profit has remained above ₹1,000 crores for the second consecutive quarter and the profit for the quarter stands at ₹1,045 crores. Which is an improvement of about 196.5% on a y-o-y basis, while it was marginally down as we had reported higher treasury income in the previous quarter. We have also given in the presentation our numbers on a core PAT basis. When I mean core PAT, that excludes trading gains for all the periods. And also certain one-off items which we had called out in the previous quarters, like the impact of the fraud incident, some income tax refunds and interest that had come in the previous quarter. The core profit, and these details are given in slide five of the presentation, again happy to report that on a core basis, the profit has crossed ₹1,000 crores and this was about ₹897 crores in the previous quarter. Some more drill down. All operating matrices continue to demonstrate a healthy growth trajectory. For example, NII grew by 21% on a y-o-y basis and 3.5% on a q-o-q basis. NII growth was in fact 4.5% sequentially if we adjust for interest on income tax refund which we had called out for Q1 '27. The NII growth in the current quarter was also broadly in line with 21.1% y-o-y increase reported in the previous quarter. The net interest margin for the quarter was 5.58% as compared to 5.90% in the previous quarter, excluding the income tax refund which we had reported. Now, I will talk about why was the moderation in NIM during the current quarter. The NIMs moderated because of, I would say, three or four factors. One was the FCNR, which I would say was the primary reason. Since this came into the denominator, we had an impact of about 16 basis points on this FCNR-backed lending. Second, because we had mobilized strong, I would say, FCNR deposit flows, we, in the interim, also parked such liquidity in low yielding treasury instruments and nostro balances. That had an impact on NIM of seven basis points. Then, there were
Sudhanshu Jain (IDFC First Bank Ltd): impact because of change in asset mix because we have grown wholesale banking and business banking at a faster pace, that had an impact of five basis points. And last is the day count convention impact because this quarter had 92 days vis-a-vis 91 days in the previous quarter. So, to summarize, 16 bps is because of FCNR lending, 7 bps is because of excess liquidity, 4 bps is because of day count convention, and 5 bps is because of other asset mix changes. The one point which I want to sort of also put across is that the margin impact on FCNR should not be viewed in isolation as because FCNR also comes in the denominator, is correspondingly also reduces operating expenses and credit cost relative to assets. And hence, we have estimated that the overall impact on the ROA could be very minimal, as low as two basis points. Pursuant to the FCNR scheme, we have also have estimated any additional benefit of 1%, including statutory benefits, which could accrue to us if we compare this with with a normal deposit, which would have raised in the otherwise if these FCNR flows were not there. This FCNR deposit also would not consume capital. Hence, whatever we earn, and which I mentioned, of 1%, that increases my NII, that increases my profitability, that increases my ROE, EPS, and all of these numbers. Just in terms of how do we see NIMs going forward? We see this recovering to approximately 5.8% by Q4 as some of these excess liquidity would have been definitely put to use by then. And also, the expected repo rate increase, which we also are factoring for the course of the year. Moving on to fee and other income, we saw a healthy growth. That increased by about 24.5% on a YoY basis compared to 22.9% in Q1. We have given details of the fee composition in the investor presentation. As a result of the increase in the NII and the fee, the total income excluding trading gains for Q2 on a YoY basis was a growth of 21.9% versus 21.5% reported in Q1. During the quarter, the treasury gains were modest at about Rs. 11 crores as compared to Rs. 181 crores reported for Q1, which was largely due to the hardening of the G-sec yields during the quarter. Moving on, the OpEx for the quarter was at Rs. 5,942 crores. This grew by 16% on a YoY basis and by 3% on a sequential basis. The increase of 3% corresponds to an increase in core income growth of about 4.6% on a sequential basis. As a result, the cost-to-income ratio excluding trading gains improved by 57 basis points on a sequential basis to 70.2% and was in fact 358 bps lower on a YoY basis. Operating jaw, which is the growth between the total income and the OpEx, that continues to improve. In fact, for the quarter, it stood at 592 basis points and for H1 it stands at 553 basis points. If you remember, we had guided for an upwards of 500 basis points which we would endeavor to maintain, and we are broadly on track on that front. As a result, the incremental cost to income ratio was about 55% for H1 and that has also resulted in in some of these opening of the jaws which I sort of spoke of slightly earlier. If I talk of operating profit of the quarter, that saw a healthy increase of 38.5% on a YoY basis and 6.6% on a sequential basis. So, for three quarters in a now we are getting an operating profit increase of upwards of 30%. Moving on to provisions, that reduced by 21.7% from 1,452 crores to Rs. 1,137 crores on a YoY basis. On a QoQ basis, if we see, this has broadly remained at the same level as we reported about 1,144 crores in the last quarter. However, to point to note also here is that the provision for the current quarter also includes standard asset provision of about Rs. 100 crores on the FCNR back loans. If we exclude this, then the provisions for the quarter declined by 9.3% on a QoQ basis. The bank continues to hold the contingency provision of Rs. 515 crores, which represents nearly 0.22% of funded assets. This is in addition to the standard asset provision of Rs. 2,130 crores,
Sudhanshu Jain (IDFC First Bank Ltd): to last quarter. This is on a prudent basis considering the evolving macroeconomic and the geopolitical uncertainties. In terms of credit cost translation, the credit cost for the quarter further improved to 1.38% as compared to 1.53% for the previous quarter. If we exclude the FCNR-backed loans and the corresponding provision, since these are backed by FDs, the credit cost for the quarter would have been further lower to 1.30% on average funded assets. On an average total assets, the credit cost which we have reported translates to a credit cost of 1.01%. Moving on to last few parts of my opening remarks, we all know that there has been a consultation paper which has been issued by IRDA. While this is still, as I said, in a consultation stage, there could be a draft circular which could come in followed by a final regulation and this is largely expected to come in from next year, but we have we have estimated the impact in as is in the current form that if this has to come, this will definitely reduce our fee income, but we feel that to a large extent the impact can be offset by the expected repo increase and the FCNR benefit which I have talked earlier. We will also continue to work on product mix changes and closely monitor the developments in this regard. Moving on to capital and liquidity, the capital adequacy ratio stood at 14.66% at September with CET1 ratio of 13.01%. On the LCR, the ratio was at 125% on an average for the quarter and with September being at higher at 139% because of the FCNR money which came in towards the fag end of August. Normally as you would have noted normally we have been maintaining LCR around the 115% mark, hence we would continue to deploy some of these excess liquidity. We also broadly feels that this will get largely consumed in a month or so. With this, I will hand over to Vaidya for his opening remarks.
V. Vaidyanathan (IDFC First Bank Ltd): Good evening, everybody. Really, really a pleasure to talk to all of you. First of all, I am really happy to share with everyone who've been observing us and tracking us for a while that second quarter in a row, a bank posts a profit after tax of 1,000 crores. It's a landmark even for us considering where we started. It feels good. It encourages us to, you know, keep going. It appears to us that a reasonable look is that this this should continue in the in the in the in the months to come as well, rather quarters to come. Now, if you see the core profitability. Core profitability meaning that if you take off what can be considered a one-time income like a treasury trading income, etc., last quarter the bank had posted a PAT of 897 crores if you round off to 900 crores. We We called it out last time when we posted 1,070 odd, we had said that a portion of that is treasury income like core core is 900. The quarter before that, the core core was like a 746. The quarter before that was 430. Quarter before that is 300. You can see the trajectory. So, I can safely say that the that the trajectory is fairly established by now. This quarter, on the core, without any adjustments, it is 1,036 crore. So, we feel good about that. I always said that we'll be in kissing distance of 1% ROA. It looks like we will get there. In fact, this quarter also we had ROA of about a 0.93%. You know, Sudhanshu mentioned the the FCNR in the in the denominator effect, but for that probably it'd been a bit higher bit higher than that. So, broadly in other words, the trajectory of profitability is looking good. I also want to say that the trajectory of profitability is today, but actually it is just because of many investments the bank has been making for for for many years. If you recall, many may not recall, but it's been a while back. But, you know, in the in the year that that that was the merger year, we were posting something like 700, 800 crores, 750 crores as the core PPOP. Now PPOP is now touching something like 10,000 crores. So, annualized. So, I think the trajectory is looking good. And now you can get to take a sense where it might look next 2, 3, 4 years from there. In in today's numbers, I'll try to give you a picture of that. So, the key thing to note is what is happening to the underlying economics. This is very important to understand because if you see the the H1 FY '27 actuals,
V. Vaidyanathan (IDFC First Bank Ltd): income is 10.7%, the interest expense is 5.0%, and the NII is 5.7% as you know. Now, fee income is is is 2.1%. These are all actuals. So the total income for H1 '27 is 7.8%. Now, the cost to income ratio is currently 70.4% on stock. Now, if you subtract from that the credit costs, the ROA comes to about 0.99 for the half year. But, for a minute on your spreadsheet, go and plug the cost to income ratio at 55%. Why 55? I'll explain to you in a moment, in a moment. So put it 55%, and you see what it does to the OPEX, OPEX comes down to 4.3%, your PPOP becomes 3.5%, the provision is still 1.1 which is actuals, the PBT becomes 2.4 and ROA becomes 1.8 1.88 1.84. The point is that on an incremental basis, the bank is now making return on assets of about 1.8% plus. On the stock basis, 0.97 or or 0.93 that I mentioned to you. So, what is the point, why why do we assume this is 54, 55 and why you should assume so? Now, if you look at the incremental cost to income ratio, what you do is that you go to H1 '26, our operating expenses was 10,400 10,000 crores, and our operating expenses in H1 of '27 is 11,000. So you get the drift, the incremental OPEX between H1 '27 and H1 '26 is 1,627 crores, and the incremental op income is 2,900 crores. So on an incremental basis, the bank is posting 55% cost to income ratio. So, eventually, the incremental becomes the base as long as you keep repeating more of the same. Now, you might ask how confident do we feel about repeating this? Now, look, for three quarters in a row, we have been pointing out that the our OPEX growth is 500 basis points lesser than the income growth. It's three quarters in a row. So it has some predictability now. And we feel we can reasonably, give or take, stay in this zone for the next few quarters as well. So, we feel all of this year, i.e. in '27, we can operate the bank at 55% cost to income ratio. So that explains to you why I requested you to plug that 55 into the into the stack, and the moment you plug it into the stack, you don't need to do any adjustment, and you don't need to do you don't have to go by projections of what cost to income ratio will be in the future. You don't need to go there. You just need to take it what it is and plug it there, you get a sense of where it might get to. So, we are actually happy to share with you that eventually that our bank is is is is not going to stop at one. This will increase because incremental is what it is, what I described to you. The second thing is that, you know, the loan growth. Now on the bank front is that the loan growth continues strong at, you know, at least 20% is clearly in a visibility. We've reported 30% this quarter, of course, YoY. That's because the FCNRB about, you know, there were about 25, 35, 25,000 crores of FCNRB backed loans are also you know, showing up here. So though the though the cred though the FCNRB was actually 35, 34,000 crores, this 24 I'm adding back because that is the amount the bank had raised in IBU and had lent to customers which customers brought back as deposit to the bank. So if you look at it like that, it shows 30, but actually think of it more like 22. Now, on the deposit front, again, you know, it's showing as 25.9, but really read it more like capacity to raise to 20. We on net of FCNRB it's probably lesser than that, but that's because we consciously reduced it because there was too much liquidity, but think of the core capacity of the deposit side to keep growing at 21, 22%. Think of the loan growth growing at 20%. So, 20-20 both sides, so you know that the that the income will start will keep flowing in strongly. Now, for a 20% growth, if our OPEX growth is 15, then you know 500 basis points I told you, and then I told you how the the cost to income ratio incremental comes and then you plug in the ROA, rest of the story I told you. Now, the next thing is that when you see this payoff then straightaway, when we see the 500 basis points increase, sorry difference between the the the OPEX growth and income growth, you find that the naturally operating profit then grows not in proportion to the book, but a higher. So, operating profit is now growing at 38.5. So, that's how the stack is playing out. The good news is that after operating profit comes credit cost. So, on the credit cost, we have now come down to about 1.3% or so of the of the loans, or about 1 1% of assets. Now, of course, it's all-time low for us. We're very happy about that. And we we're very cautious about it because, you know, Q3, Q4, El Niño's yet to full effect is
V. Vaidyanathan (IDFC First Bank Ltd): so, we will watch this very, very carefully, but as, as far as, as, as our eyes can see looks like this is reasonably, achievable in the next two quarters as well. So, therefore, if you take this at one, then the rest of the stack plays itself out, you know, how the PAT PAT will really will play out. Now next I'd like to talk about FCNR. Now, the really good news that, you know, all of us should take note is that for a bank, which has just, you know, just about seven years ago, we started in full earnest to be setting up a deposit franchise. If you remember the deposit franchise was retail was just Rs. 10,000 crores, so it was just like the start. And for maybe and and let me say from the from the date we got the license is 10 years, let's take that date. But for a bank just 10 years from a deposit license, just think that we could raise Rs. 34,400 crores that's $3.6 billion of FCNR(B) money. We have no overseas branch, we have no subsidiary, we have no rep office outside India. Just customer trust and digital capabilities. It should give you a clue about how strong the bank's digital capabilities have have become if this is the kind of money the bank can raise in that window. Now, the other big benefit of FCNR(B) is that, they are 3 to 5-year, you know, deposits, so it has given the bank a lot of structural liquidity and particularly now that interest rate has suddenly risen in the last 15-20 days, we are now almost beginning to, be overjoyed that we raised this kind of money for such long tenure at a low cost. The other thing is that there is some, you know, understanding in the market let me say, understanding or misunderstanding, let me say, about what this FCNR(B) does, to NIM. So, I have not I have seen, you know, people tend to, jump to conclusions that, that the FCNR(B) has whenever people has raised FCNR(B), through, leverage that is through leverage, meaning having raised money through IBU and giving it to customers. It has come back to us as deposits. Particularly, there's a double counting, on the I mean another not double counting, let me say the balance sheet expands by by that amount. In our case, that amount is Rs. 24,885 crores. Let me Since I spoke too fast, let me just, slow down and explain that to you. In the IBU that we have, you know, we have raised this amount of money as, as borrowings which we have further given ahead as loan deposit loans to customers, which came to us as deposits. Now, because of this, the asset side expands by that amount. Now, when the asset side expands, then the NIM drops to that extent. So, in our case, that impact is, 16 basis points. Now, often times many are looking at the 16 basis points in isolation and then wondering that, my god, your NIM has dropped, so is your profit going to reduce? But that's not true. I want to clarify. While we the NII NIM percentage dips by the 16 basis points because of this impact, when you go by the ROA tree, because eventually it's ROA tree, when you go back to return on asset tree, the Opex also has is also now going to be divided by the expanded assets, which is the new number, which is add Rs. 25,000 crores to it. So, there you get the benefit in operating expenses. Similarly, when you take credit cost, again, that will get divided by a larger expanded base. So, when you come down and trace this down to the ROA tree, in our case, if the estimate is that's only two basis points. So, I would request analysts to not immediately read the 16 basis points as a red red red red flag, because please go down and see what it does to the Opex and what it does to the credit cost also, you'll see at ROA level is not much impact. So, this is one important clarification I wanted to bring to you. Now, so, this is the, bit on, Now, the last bit I'd say like to talk about is what this FCNR(B) has done, to our cost of funds. Now, actually before I come there, let me just talk about the IRDA, and I'll bring that back in context. So, if you all of you know that our IRDA has come out with the with the with the with the insurance paper on commissions to be paid, etcetera. Now, the number the the paper is what it is. Let us assume it comes in its current form. So, we have to be prepared for it, and we have to know what the impact will be. Our own sense is that our bank, is that there are three countervailing factors which There are three countervailing factors which will, which will, sorry, once again, some disturbance at my end. And which will also, compensate for that. One is that, the FCNR(B) deposits that we have raised are giving us about 1% benefit, to the overall, cost of funds what we would have cost of deposits, what it would have costed had we raised it domestically. Let me read out the, broad
V. Vaidyanathan (IDFC First Bank Ltd): So, basically, the, the, the impact, one is we have reached it at, at, at, at a rate, you know, the rate differential between the rate we borrowed it in the IBU and, what we lend to customers, there is a small margin out there, maybe call it 40, 50 basis points. Now when you add that back to the, to the eventual price you pay to customers, which is 6.75, and the 6.75 becomes 6.85, I think, because of the quarterly impact.
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