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IDFC First Bank, a private sector lender, reported a significant decline in its net profit for the second quarter (Q2) of the fiscal year 2025 (FY25), ending September 30, 2024. The bank's net profit fell by 73.3% year-on-year (YoY) to ₹200.7 crore, a sharp drop compared to the ₹751.3 crore earned in the corresponding period of the previous fiscal year. This result fell short of analysts' expectations, with the CNBC-TV18 poll predicting a profit of ₹644.6 crore for the quarter.
Despite the decline in net profit, IDFC First Bank saw a robust growth in its net interest income (NII). NII, which represents the difference between interest earned on loans and interest paid on deposits, surged by 21.2% YoY to ₹4,787.8 crore, compared to ₹3,950.2 crore in Q2 FY24. Although the bank's net interest margin on assets under management (AUM) witnessed a marginal reduction of 4 basis points to 6.18%, the bank's core operating profit, excluding trading gains, registered a substantial 28% YoY increase.
The bank also reported a strong growth in customer deposits, which surged by 32.4% YoY to reach ₹2,18,026 crore. This increase was primarily driven by a significant growth in retail deposits (37% YoY) and CASA deposits (37.5% YoY). CASA, which stands for Current Account and Savings Account, saw its total reach ₹1,09,292 crore, contributing to a high CASA ratio of 48.9%. The cost of funds remained stable at 6.46%, with the cost of deposits also staying stable at 6.38%.
On the lending side, IDFC First Bank's total loan book expanded by 21.5% YoY, reaching ₹2,22,613 crore. Retail loans witnessed a notable increase of 25.1%, while the corporate loan (non-infrastructure) book grew by 20.0%. The bank's gross non-performing assets (NPAs) marginally increased by 2 basis points quarter-on-quarter (QoQ) to 1.92%, while net NPAs improved by 11 basis points to 0.48%. The provision coverage ratio saw a significant rise of 589 basis points QoQ to 75.27%.
Despite the strong deposit growth and expansion of the loan book, IDFC First Bank's profitability was negatively impacted by higher provisioning. The bank made provisions of ₹1,732 crore in Q2 FY25, primarily due to a prudent provisioning buffer of ₹568 crore for the microfinance business and an additional provision of ₹253 crore related to a legacy infrastructure toll road account. Despite the provisioning, the bank's capital adequacy ratio remained robust at 16.36%, with a CET-I ratio of 13.84%.
Overall, IDFC First Bank's Q2 FY25 results showcased mixed performance. While the bank witnessed strong growth in NII, deposits, and loan book, its net profit was significantly impacted by higher provisioning. The bank's strong capital adequacy ratios and stable cost of funds provide a cushion for future growth. However, the bank will need to manage its provisioning levels effectively to improve its profitability in the coming quarters.
Source: IDFC First Bank Q2 falls short of estimates; net profit dives 73%, NII rises 21% to ₹4,78 crore