IDFC First Bank Limited - First Bank Preference for Long Term Investors too?

@Nishit honestly I cant say they haven’t delivered 1.0.

I too was very grumpy with them for long, but have come to believe that all structural improvements they have done is real good.

Yes, they did not deliver Pat, ROA, ROE of 1.0. This was a seeped in trouble bank. Retail Deposits they have beat out the wildest imagination from 10000 cr to 1.8 lac cr in 6 years (structural improvement). Far beyond the guidance. CASA ratio from 8.7% to 47%, they promised 30% (structural improvement). Branches 800-900 they landed at around 1000, certificate of deposit reduced from 17% to 3% ( a structural benefit), retail book of 1 lac cr, they are sitting at 1.9 lac cr (MFI is a problem I don’t deny, but rest of the book is good, they have been disclosing SMA, NPA, product wise, quarter wise for 4 quarter trend), credit cost is only 1.8% if we exclude MFI, GNPA, NNPA etc. ofcourse if we take MFI also and see, then too it’s a gr8 progress. We cannot ignore all this and only count ROA ROE. Think also they lost a couple of years to Covid. It happened to all banks but this one got it early in their life.

Net net, like I wrote earlier, here is a guy who thought he will acquire a bank using his NBFC currency. Bank proved too difficult to set up. The issue he is realising I assume that staying as an NBFC was better. Taking a junk bank with no operating profits proved to be a thankless job I feel.

Shareholders are shareholders. They don’t care if you are a new bank or old bank, they want to see money, rightly so.

My learning is it doesn’t only matter who the pilot is, if the vehicle is damaged or underperforming, a great driver can improve performance but the vehicle will still lag others.

But the surprise factor is … if he actually pulls off the increase in P/B from 1.2 to 2 or so, by increasing ROE to say 14 or 15, then it will be a heist.

On a peculiar note, if I exit this stock altogether, I will miss all the fun from this debate! And even the learning from this complex twisted plot. Customer service etc. I agree with your comments.

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I sail in the same boat: Invested and holding.

They missed RoA (profitability, RoE). But the trajectory is upward. Flattish though.

One decent quarted without Provisioning, and for the first time RoA will cross 1.0

Bank started in 2018, merged with capital first, then came Covid. So, essentially last two/three years is all they had. I want to give them more time in making a world class bank.

I have not seen a new bank start, make roots and flourish. So, i don’t know how that phase looks like. But, what idfc is doing doesn’t feel that bad.

VV markets well. Not too well though. He says all there is to say upfront. I followed progress, or the lack of it, during Covid. VV didn’t refrain from saying the truth no matter how bad.

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IDFC First | CEO Note

The bank is closely monitoring the microfinance loan book amid industry challenges, viewing credit issues as temporary and likely to resolve in a few quarters.

Asset quality remains stable with GNPA at 1.94% and NNPA at 0.52%, lower at 1.81% and 0.49% excluding microfinance.

Microfinance supports PSL norms, while other segments like deposits, loans, credit cards, and corporate banking are performing well.

The bank expects improved operating leverage and a lower C:I ratio as it scales up.

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IDFC FIRST | Q3 HIGHLIGHTS

a. Customer Deposits rose 28.8% YOY to ₹2,27,316 crore in Dec 2024.

b. Retail Deposits grew 29.6% YOY to ₹1,80,752 crore, forming 80% of total deposits.

c. CASA Deposits increased 32.3% YOY to ₹1,13,078 crore; CASA Ratio at 47.7%.

d. Cost of Funds 6.49% V 6.38 % ( QOQ) , excluding legacy borrowings at 6.43%.

e. Loans and Advances rose 22% YOY to ₹2,31,074 crore (Dec 2024).

f. Retail loans grew 21.3%, corporate loans (non-infra) up 28.9%.

g. Legacy infra book reduced 15% YOY to ₹2,546 crore, 1.1% of funded assets.

h. Microfinance share dropped to 4.8% (from 5.6% in Sep 2024).

i. The bank is closely monitoring microfinance delinquencies, while asset quality for the non-microfinance portfolio (~95% of loans) remains stable.

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IDFC First | Asset Quality

a. Excluding micro-finance business, the GNPA was at 1.81% v 1.88% QOQ

b. Gross NPA of the Retail, Rural and MSME Finance stood at 1.63% v 1.45% QOQ

c. Net NPA of the Retail, Rural and MSME Finance was 0.59%V 0.51%QOQ

d. Gross Slippages Up 8 % To 2192 Cr QOQ , Majority of the increase in slippage during Q3FY 25 was from the micro- finance business which constituted Rs. 143 crores out of the said Rs. 162 crores.

Hence, gross slippage on the Retail, MSME, Agri and Corporate Loans, ie the non-microfinance business was stable. These businesses constituted ~95% of the total book of the Bank

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Sharing a transcript of an interview I came across today.

Hindu Businessline

‘See MFI segment stress peaking out in Q4FY25’: IDFC First Bank MD says
Updated - January 29, 2025 at 07:02 PM. | Mumbai

The stress being witnessed in micro loans or MFI segment will likely peak out in Q4FY25 and credit cost in MFI loans will likely start moderating from Q1FY26 onwards, IDFC First Bank MD, CEO V Vaidyanathan tells businessline in an interaction. He talks about the guardrails bank has put in place to counter stress in unsecured credit segment, while sharing guidance on net interest margin (NIM). Edited excerpts:

Are you in compliance with MFI sector SRO body guidelines. When do you foresee MFI stress peak out?
We are fully complaint. In addition we have put some additional norms like looking at number of trade enquiries, leveraging rules etc. We do MFI because it helps meet PSL regulatory requirements of weaker segments, small and marginal farmers. We were a DFI (development finance institution), converted to a bank overnight. So, MFI helped us catch up PSL requirements quickly. And at the same time it is a profitable business as well.

The recent issue with MFI is something that happened across industry. Our MFI book has come down from 7 per cent of total loans a year ago, and we will lower it about 2-2.5 per cent of overall book. With self-regulatory organisation (SROs) interventions and low exposure, it will be overall safe. For further safety, 58 per cent of our MFI book is already insured, which will become 100 per cent in due course. We will replace the gap with other form of PSL.

At this stage of analysis, we feel that in Q4FY25 we will see the peak of MFI stress and from Q1FY25 onwards, credit cost should come down in MFI book. MFI typically is 2- year loan and almost 1 year has already passed

Excluding MFI book, how is the book performing
Excluding MFI, the entire loan book is performing very well. Special mention accounts, or loans that are 30-90 days past due (DPD), is the best indicator. We give SMA and NPA (non-performing asset) level product by product in public domain. All SMA numbers are between 0.3 per cent-1.15 per cent. Our gross NPA and net NPA ratio its only 1.81 per cent and 0.49 per cent, which is quite low excluding MFI. All in all, excluding MFI, our numbers are quite stable, and we expect it to be stable.

Has the stressed toll account started repaying again?
Yes, monies are coming in, we are getting about 30 per cent of what we were getting prior to the new rules coming into place. But we are pursuing the matter and are pursing recoveries. Since merger, we have resolved about Rs 20,000 crore of infrastructure loans, which is now down to Rs 2,500 cr. We will doggedly pursue this also.

How is the cards business performing?
We started the business just 3 years ago, so base is low. We have extended credit card largely to our existing bank customers. Also we are very careful with credit norms. Apart from bureau score, we assess stability of a person, how long does one have bank account with other bank, and there are lot of other inputs that are taken before we extend credit card. Our gross NPA in credit card is only 1.91 per cent and net NPA is 0.53 per cent. We also have highly digital process, so we probably get more digitally evolved customers, this could also be a possible reason.

What are the levers for other income growth?
We have seeded businesses of wealth management, cash management, rural, gold loans, commercial vehicles. Currently 31 per cent of fee income is loan origination fees, credit cards and toll is 20 per cent, wealth and third party is 17 per cent, and trade, FX, general banking fees etc is 23 per cent.

Will you be able to maintain NIM at 6 per cent?
NIM should broadly be stable. We have unique model where our NIM is strong but our credit cost as compared to our peers is low in like to like business lines. Because we play in the prime of every segment, whether it is two-wheeler or used cars. Also we are very good at using data as we are a very digital bank with advanced scorecards. We will have to see the full impact of MFI book coming down, and it being replaced with gold loans, working capital loans.

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Bank has done fund raising 3 times over the last 4 years: 3000 in 21, 3000 in 23 and 3200 in 24, at 57, 90 and 80 respectively. I expect them to do another round of fund raising in the next 6-9 months. Most of the fund raises were done at good valuation to the Bank.

Bank results have been volatile with provisions and high op-ex. Banks do have some ability to manage their earnings by moving around provisions and taking advantages of the existing provisions among other levers.

I expect the bank to post better quarterly numbers and use that setup for the next round of fundraising. Mostly next fundraising will be at least around 75/share. With book value of around 52 and with next 4 quarters of earning and fundraising above book value should help it raise book value 55-58 range. Price below 60 is a good entry point if the bank does deliver on promise of growth and scale in next 3-4 years.

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