IDFC FIRST Bank Targets Lower Credit Costs After Record ₹1,075 Crore Quarterly Profit

IDFC FIRST Bank expects its stronger earnings momentum to broadly continue through the 2026–27 financial year after reporting a record profit of ₹1,075 crore for the April-to-June quarter, supported by lower funding costs, improving asset quality and reduced credit provisions. Managing director and chief executive V. Vaidyanathan said the improvement came primarily from two factors: provisions declined as loan repayments and portfolio performance remained healthy, while income benefited from an approximately 45-basis-point fall in the bank’s cost of funds. The official Q1 FY27 results showed profit after tax rising 132.4% from a year earlier, while core operating profit increased 36% to ₹2,371 crore. The cost of funds stood at 5.96%, down 46 basis points year-on-year, reflecting the bank’s continued shift towards a stronger retail-deposit franchise and lower-cost current and savings accounts. Total deposits reached nearly ₹3.12 lakh crore, with the CASA ratio improving to 50.8%, while total loan assets, including credit substitutes, crossed ₹3.05 lakh crore. Asset-quality indicators also strengthened, with the gross non-performing asset ratio declining to 1.51% and the net NPA ratio falling to 0.44%. Vaidyanathan said the bank did not currently see signs of fresh stress in its broader loan portfolio, although management had voluntarily created a contingency provision of approximately ₹515 crore to protect against possible risks arising from geopolitical uncertainty, oil-price movements and an unfavourable monsoon. This provision should therefore not be interpreted as confirmation of an existing loan-quality problem, but as a precaution against conditions that could affect borrowers later in the year. The bank’s credit cost, which includes provisions and write-offs as a share of loans, was 2.13% in the previous financial year, slightly above its guidance of 2.10%, largely because of industry-wide stress in microfinance. For FY27, management is targeting a lower credit cost of approximately 1.5% to 1.6%, which could materially improve profitability across a loan book of around ₹3 lakh crore if asset quality remains stable. The bank is also gradually increasing its exposure to products carrying relatively lower default risks, including mortgages, vehicle finance, secured working-capital loans and corporate lending, while continuing to serve micro-enterprises, small retailers and rural borrowers. Its reported net interest margin was 5.96% in the first quarter, although management said the underlying figure was closer to 5.9% after removing the effect of an income-tax refund and expects the full-year margin to remain near 5.8%. IDFC FIRST Bank is additionally rebuilding its wholesale-banking business after reducing corporate exposure during the years following its transition from a development-finance institution, with the longer-term ambition of operating as a full universal bank serving large companies, small businesses and retail customers. While falling costs and provisions have created a favourable earnings outlook, the sustainability of the record profit will still depend on deposit pricing, credit growth, microfinance recovery, economic conditions and the absence of new stress from external risks.